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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 1-13879
OCTEL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 98-0181725
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 17,
Oil Sites Road,
Ellesmere Port,
South Wirral,
United Kingdom L65 4HF
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011-44-151-355-3611
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock, $0.01 par value New York Stock Exchange
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Securities registered pursuant to Section 12 (g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
the past 90 days.
Yes X
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
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As of March 10, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $183,759,030.
As of March 10, 1999 13,934,334 shares of the registrant's stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Stockholders are incorporated by reference
into Parts I, II, III and IV. Certain portions of Octel Corp.'s proxy statement
to be mailed to stockholders on or about March 30, 1999 for the annual meeting
of Stockholders to be held on May 11, 1999 are incorporated in Part III hereof
by reference.
1
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PART I
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Item 1. Business
General
Octel Corp., a Delaware corporation (the "Company") is a major manufacturer and
distributor of fuel additives and other specialty chemicals. Its primary
manufacturing operation is located at Ellesmere Port, South Wirral, United
Kingdom. The Company's products are sold globally, primarily to oil refineries.
Principal product lines are lead alkyl antiknock compound ("TEL"), other
petroleum additives and performance chemicals.
Until May 22, 1998, the Company was a wholly owned subsidiary of Great Lakes
Chemical Corporation, a Delaware corporation ("GLCC"). On May 22, 1998, GLCC
consummated the spin-off of its petroleum additives business by distributing
shares in the Company to the stockholders of GLCC in a ratio of one Company
share for every four GLCC shares held. In connection with the spin-off the
Company issued 14,762,417 shares of common stock on May 26, 1998. A further 969
shares were subsequently issued in respect of late notified changes in GLCC
stockholders at the record date of the spin-off issue.
The term "Octel" as used herein means Octel Corp. and its subsidiaries unless
the context indicates otherwise.
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 14 through 23 of the 1998 Annual Report to Stockholders (the
"Report") are incorporated herein by reference.
Segmental Information
The Company presently has one principal business segment, petroleum additives.
Note 2 on the Financial Statements included in the Report (the "Financial
Statements") on pages 33 and 34 of the Report, is incorporated herein by
reference.
Description of the business
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 14 through 23 of the Report, is incorporated herein by
reference.
Overview
The Associated Octel Company Limited was formed in 1938 to manufacture and
market TEL as an antiknock additive for gasoline. The Company is an
international chemical company specialising in the manufacture, distribution and
marketing of fuel additives. The Company is organised into three Strategic
Business Units - TEL, Petroleum Specialties and Performance Chemicals. The TEL
business, which accounted for approximately 79% of the Company's 1998 sales, is
the world's leading producer of TEL that is used by oil refineries world-wide to
boost the octane levels in gasoline which allows fuel to burn more efficiently
and prevents engine knock during the fuel cycle. The Company manufactures
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approximately 80% of the global demand for TEL. The Petroleum Specialties
business, which accounted for approximately 14% of the Company's 1998 sales,
provides a broad range of petroleum additives, including combustion improvers,
fuel detergents and functional performance products. The Performance Chemicals
business, which accounted for approximately 7% of the Company's 1998 sales,
manufactures and distributes a range of chemicals including Octaquest(R) a
biodegradable chelating agent developed for the detergent market.
TEL
TEL, the most significant of the Company's products, accounted for approximately
79% of the Company's 1998 sales. TEL was first developed in 1928 and introduced
into the European market for internal combustion engines to boost octane levels
in gasoline, allowing it to burn more efficiently and eliminating engine knock.
TEL remains the most cost-effective octane enhancer for motor gasoline and has
the added benefit of acting as a lubricity aid, reducing engine wear. TEL is
used as a gasoline additive in various concentrations depending on the intrinsic
nature of the base fuel and the targeted octane number.
While TEL remains the most cost-effective and energy-efficient additive from an
octane-boosting perspective, leaded gasoline undermines the effectiveness of
catalytic converters, which are increasingly being used to reduce automobile
exhaust emissions. There has also been increasing pressure from regulators and
environmental groups regarding the alleged harmful effects on human health of
leaded gasoline. Environmental agencies and the World Bank are advocating the
elimination of TEL in automotive gasoline.
Worldwide use of TEL has declined since 1973 following the enactment of the US
Clean Air Act of 1970 and similar legislation in other countries. The decline in
TEL volumes since 1990 has been approximately 12% per annum, and management
believes that volumes will continue to fall at roughly 15% per annum.
While TEL business is declining, it will remain viable for a number of years. It
is costly for refineries to switch their gasoline production process to unleaded
gasoline and therefore upgrading some refineries may not be economically
justifiable. These refineries may decide to continue operating until reduced
demand for leaded gasoline forces their closure. There are also significant
costs and delays in converting automobiles and gasoline stations to accommodate
the increased use of unleaded fuels. The transition to lead-free fuel is
therefore unlikely to happen globally all at once.
The Company intends to manage the decline safely and effectively and to maximize
the cash flow through the decline. Continuous cost improvement measures have
been, and will continue to be, taken to respond to declining market demand. A
key step was reducing capacity which will no longer be needed through the
closure of French and Italian manufacturing operations in 1996 and of one of the
three UK based TEL plants in December 1998. The Company will continue to
downsize its manufacturing and operating cost base and restructure its
operations as the market continues to decline, whilst also looking for
opportunities for further industry consolidation.
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Petroleum Specialties
The Petroleum Specialties business develops, produces and markets a range of
specialty products used as fuel additives, built on the TEL operations. The
Company has developed a range of products and customized blends to meet market
demand for cleaner-burning and more efficient fuels. The Refinery Services unit
supplies a growing list of products and services that improve operational
efficiencies and product performance at the refinery. The addition of Octel
Deutschland GmbH to Octel's group during 1998 opens new marketing opportunities
and an expanded product range including Ferrocene, an iron based combustion
improver.
Performance Chemicals
This business originally centered on intermediates and raw materials related to
the TEL operations. The Company's focus going forward is to develop high
performance and particularly environmentally friendly products from its
technology base. The major current line is Octaquest, developed for the
detergent market but now addressing new markets in personal care, paper,
photographics and other markets where biodegradability is a key requirement.
Octaquest technology is also the platform for the development of a family of
products such as Octahib(R), a biodegradable corrosion inhibitor that protects
metal.
Raw Materials
Raw material purchases comprise approximately 20% of the Company's total Cost of
Goods Sold. The major purchases are lead, ethylene, salt and dibromoethane.
These materials are available readily from more than one source, and the Company
uses long term contracts to manage the risk of price escalation.
Patents and Intellectual Property
The Company has a portfolio of trademarks and patents, granted and in the
application stage, covering products and processes. These trademarks and patents
relate primarily to the Petroleum Specialties and the Performance Chemicals
businesses, in which intellectual property forms a significant part of the
Company's competitive strength. The majority of these patents were developed by
the Company. Most patents have more than ten years life remaining. The Company
also holds a license for the manufacture of fuel detergents. The Company has
trademark registrations for the use of the name Octel(R) and for the Octagon
device in Classes 1 and 4 of the "International Classification of Goods and
Services for the Purposes of the Registration of Marks" in all countries in
which it has a significant market presence except for the US in respect of which
the appropriate applications have been made. Octel also has trademark
registrations for Octaquest(R). The Company has applications in progress for a
number of other trademark registrations in several jurisdictions.
Octel America Inc., a subsidiary of the Company, has trademarks for Stadis(R),
an aviation and ground fuel conductivity improver, Ortholeum(R), a lube oil
additive antioxidant and metal deactivator, Ocenol(R), an antifoam for refinery
use, and Valve Master(R), a valve seat recession additive. The Company does not
consider its business as a whole to be dependent on any one trademark, patent or
licence.
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Customers
TEL sales are made either to the retail refinery market or to Ethyl Corporation
("Ethyl"). In 1998 79% of Octel's sales volume was to retail refinery customers,
some 200 independent, state or major oil company - owned refineries located
throughout the world. Within this market, refineries owned by British Petroleum,
Mobil Oil and Texaco Oil are entitled to profit participation payments, based on
their ongoing purchases from the Company, by virtue of their former partnership
interest in Octel Associates, an Octel Corp. subsidiary. Selling prices to other
refineries are principally negotiated under long term supply agreements, with
varying prices and terms of payment.
The customers of the Petroleum Specialties business are comprised of
multinational oil companies and fuel retailers. Traditionally, a large portion
of the total market was captive to oil companies which had fuel additives
divisions providing supplies directly to their respective refinery customers. As
a result of recent corporate restructurings and various mergers, joint ventures
and other collaborative arrangements involving downstream refining and marketing
operations, the tied supply arrangements between oil companies and their captive
fuel additive divisions have been weakened and many refineries are increasingly
looking to purchase their fuel additive requirements on the open market. This
trend is creating new opportunities for independent additive marketers such as
the Company.
Competition
The world-wide market for the Company's primary product, TEL, is highly
competitive. In this market Octel competes not only with other sellers of TEL
but with marketers of products and processes providing alternative ways of
enhancing octane performance in automotive gasoline. Approximately 98% of all
TEL sold is used to improve the antiknock characteristics of gasoline for
automobiles. Other products and processes which are used to enhance octane
performance in automotive gasoline include oxygenates, primarily methyl tertiary
butyl ether ("MTBE") and ethanol, as gasoline blending components as well as the
installation of additional reforming capacity through refinery upgrades. In
addition, non-lead metallic based antiknock additives are currently under
development by several companies including Octel. Government regulations have
restricted or eliminated the use of TEL as an automotive gasoline additive in
many of the largest and developed markets such as the US. As a result, worldwide
demand for TEL is progressively shrinking as the use of unleaded gasoline
becomes more widespread. On a worldwide basis Octel remains the largest TEL
marketer, although the number and strength of its competitors vary depending on
the geographical area involved.
The Company's Petroleum Specialties business operates in a competitive
environment with its main competitors being large oil and chemical companies. No
one company holds a dominant market share. The Company considers its competitive
strengths are its strong technical development capacity, independence from major
oil companies and its strong long-term relationships with refinery customers in
the TEL market which provide synergies with the Petroleum Additives business.
5
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The Company is seeking to expand its Specialty Chemicals business and is
currently evaluating opportunities to implement this strategy. Growth will be
sought from a combination of internal and external sources, including the
in-house development of new products through research and development,
exploitation of current products into new markets, licensing agreements, custom
synthesis of specialty products and acquisitions of products and/or businesses.
Ethyl Agreements
The Company supplies Ethyl on a wholesale basis with TEL for resale to customers
under two separate long-term supply agreements at prices adjusted annually
through agreed formulas. Under one of these agreements (the "US TEL Supply
Agreement"), effective January 1, 1998, Ethyl purchases from the Company its TEL
requirements for resale to its customers in the United States. In the other
agreement, dated December 22, 1993, Ethyl purchases TEL from the Company for
resale to customers located outside the United States. The maximum quantities of
TEL Ethyl can purchase under the non-US agreement is 35,000 metric tons per year
through 1998 and, thereafter, is set at a fixed percentage of the Company's
annual production capacity. Pursuant to a Bulk Transportation Agreement, dated
March 25, 1994, Ethyl supplies the Company with all of its bulk transportation
requirements for TEL. The Company, Ethyl and GLCC reached an agreement with the
Federal Trade Commission on June 24, 1998 with respect to the terms of a consent
decree governing sales of TEL by the Company to Ethyl for resale in the US
market. The Company and Ethyl complied with the provisions of the consent decree
by negotiating and putting into effect a new long term contract governing the
supply of TEL to Ethyl for resale in the US market. It should be noted that the
entire US TEL market is relatively small and therefore only a very minor portion
of the Company's sales to Ethyl are for resale in the US market. Neither the
terms of the consent decree nor the execution of the US TEL contract with Ethyl
is expected to have a material adverse effect on the Company's business, results
of operation or financial condition.
Effective October 1, 1998 the Company's UK subsidiary The Associated Octel
Company Limited ("Associated Octel") signed agreements with Ethyl to market and
sell TEL in areas of the world excluding North America and European Union. The
agreements implemented the memorandum of understanding between the companies
previously announced on July 27, 1998. Under the agreements, all marketing and
sales efforts made to customers are made in the name of Associated Octel. Ethyl
provides bulk transportation services in support of the agreements while Octel
continues to produce all TEL marketed under these agreements. Depending upon
cost, performance and flexibility, one or both companies provide other TEL
services. As countries move increasingly toward lead-free fuel and the demand
for TEL continues to decline, it becomes increasingly more expensive to market,
sell, manufacture and distribute a given quantity of TEL. The Company believes
that significant cost savings can be achieved under these agreements by
permitting more efficient marketing, sales and distribution of TEL products.
6
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Technology
The Company's research and development facilities are located at Ellesmere Port,
UK, while its advanced fuel testing facility to support the TEL and Petroleum
Specialties businesses is located at Bletchley, UK. The Company's research and
development activity has been, and will continue to be, focused primarily on the
development of new products and formulations for the Petroleum Specialties and
the Performance Chemicals businesses. Technical customer support is also
provided for the TEL business. Expenditures to support research,
product/application development and technical support services to customers were
$3.1 million, $3.8 million and $5.6 million in 1998, 1997 and 1996,
respectively. The Company considers that its strong technical capability
provides it with a significant competitive advantage. In the last three years,
the Petroleum Specialties business has developed new detergent, lubricity and
combustion improver products, in addition to the introduction of several new
cost effective fuel additive packages. A patented process for manufacturing
Octaquest(R) has enabled the Company to enter into a new market in the
performance chemicals area.
Health, Safety and Environmental Matters
The Company is subject to Environmental Laws in all of the countries in which it
does business. The principal Environmental Laws to which the Company is subject
in the UK are the Environmental Protection Act 1990, the Water Resources Act
1991, the Health and Safety at Work Act 1974 and regulations and amendments
thereto. Management believes that the Company is in material compliance with all
applicable Environmental Laws, and has made appropriate provision for the
continued costs of compliance with Environmental Laws. Nevertheless, there can
be no assurance that changes in existing Environmental Laws, or the discovery of
additional liabilities associated with the Company's current or former
operations, will not have a material adverse effect on the Company's business,
results of operations or financial condition.
Human Resources
The Company's workforce at December 31, 1998 consisted of 1305 employees, of
which 1118 were in the UK. Approximately half of the Company's employees in the
UK are represented by unions, including the Transport and General Workers Union
and the Amalgamated Engineering and Electrical Union.
The Company has a major employee communication program to help its employees
understand the business issues surrounding the Company, the TEL business and the
corporate downsizing program that has been implemented to respond to declining
TEL demand. Regular monthly briefings are conducted by line managers where
Company-wide and departmental issues are discussed. More formal communication
takes place with the trade unions which the Company recognizes for negotiating
and consultative purposes.
7
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Management believes that the communication program has been highly successful
and has contributed to achieving a significant reduction in the Company's UK
workforce since January 1, 1996. The Company has implemented an extensive
retraining program which will enable further improvements in the productivity
and flexibility of the Company's UK workforce. A major change in working
practices was introduced during 1996 whereby the workforce began an annualised
hours contract, monthly pay and staff status. This program reflects the
co-operative employee relations climate which exists at Ellesmere Port. A
further example of the positive working relationship is the signing of a
two-year salary contract on January 1, 1998, which gives predictability of
employment costs through January 1, 2000.
The Company closed one of its three TEL buildings at year-end, 1998. Following
the agreement of a further voluntary severance program in November 1998, 280
employees based in the United Kingdom will leave the Company by June 1999.
Approximately 70 of these employees had already left by December 31, resulting
in a 1998 reduction of 161 people. By mid-1999, the total UK workforce will be
reduced by 50% from the 1,800 employed in June 1996. This has all been achieved
through voluntary severance programs.
Item 2. Properties
A summary of the Company's principal facilities is shown in the following table.
Each of these properties is owned by the Company, except where otherwise noted:
<TABLE>
<CAPTION>
Location Principal Operations
- -------- --------------------
<S> <C>
Newark, Delaware, US (1)................. Octel Corp. Headquarters; Petroleum Specialties regional office
London, UK (1) .......................... Sales & Marketing
Ellesmere Port, UK ...................... Associated Octel Headquarters; Business Team; Manufacturing; Research &
Development; Administration
Bletchley, UK ........................... Fuel Technology Center
Herne, Germany (1)....................... Octel Deutschland GmbH; Manufacturing and Administration
</TABLE>
(1) Leased property
The Ellesmere Port facility, which includes 94 acres of land, houses the
administrative headquarters and offices for Associated Octel, Research and
Development laboratories and all the Company's manufacturing facilities. These
manufacturing facilities consist of a chlorine plant (capacity - 40,000 metric
tons per annum), a sodium plant (capacity - 24,000 metric tons per annum), an
ethyl chloride plant (capacity -44,000 metric tons per annum), an EDDS plant for
the manufacture of Octaquest (capacity - 3,000 metric tons per annum), a
detergents plant for the Petroleum Specialties business (capacity - 5,000 metric
tons per annum) and Lead Alkyls plants for the manufacture of TEL (capacity -
66,000 metric tons per annum).
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Item 3. Legal Proceedings
There are no material pending legal proceedings involving the Company, its
subsidiaries or any of its properties. Furthermore, no director, officer or
affiliate of the Company or any associate of any director or office is involved,
or has a material interest in, any proceeding which would have a material
adverse effect on the Company.
Item 103 of Regulation S-K requires disclosure of administrative or judicial
proceedings arising under any federal, state or local provisions dealing with
protection of the environment, if the monetary sanctions might exceed $100,000.
There are currently no such proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter ended
December 31, 1998.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is listed on the New York Stock Exchange. As of March
10, 1999 there were approximately 2,480 registered holders of the common stock.
Quarterly stock prices on page 47 of the Report are incorporated herein by
reference.
The borrowings entered into by the Company in relation to the spin-off from GLCC
restrict the Company's ability to pay dividends or buy back stock to a maximum
of $15 million per annum in aggregate.
Item 6. Selected Financial Data
The Financial Highlights on the inside cover of the Report and the Quarterly
Summary on page 47 of the Report are incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The discussion on pages 14 through 23 of the Report is incorporated herein by
reference. This includes the following cautionary statement regarding forward
looking statements:
"Some of the information presented in this Annual Report constitutes
forward-looking comments within the meaning of the Private Litigation Reform Act
of 1995. Although the Company believes its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Factors which could cause actual results to differ from
expectations include, without limitation, the timing of orders received from
customers, the gain or loss of significant customers, competition from other
manufacturers and changes in the demand for the company's products, including
the rate of decline in demand for TEL. In addition, increases in the cost of
product, changes in the market in general and significant changes in new product
introduction could result in actual results varying from expectations."
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Information relating to the Company's exposure to market risk is set out below.
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Raw materials
Raw material purchases comprise approximately 20% of the Company's total Cost of
Goods Sold. The major purchases are lead, ethylene, salt and dibromoethane.
These materials are available readily from more than one source, and the Company
uses long term contracts to manage the risk of price escalation.
Foreign currency
The Company invoices between 50% and 60% of its sales in US dollars to match
dollar outgoings, principally debt and interest payments. The balance is mainly
invoiced in UK pounds sterling to match the Company's sterling costs. The
Company uses financial instruments to hedge firm foreign currency commitments as
required. These are used to minimize exposure and are not for speculative
trading purposes. At December 31, 1998 the Company had no outstanding foreign
exchange.
Fluctuations in foreign currency may also impact the stockholders' equity of the
Company. The local currency has been used as the functional currency for each
company throughout the group. Exchange differences arising on the retranslation
of non-US company balance sheets to year end rates are recorded in stockholders'
funds as cumulative translation adjustments.
Interest rates
The Company is exposed to interest rate fluctuations on its borrowings. The
Company manages this exposure by borrowing at fixed and variable rates and by
entering into interest rate swap, floor and collar and cap agreements to
exchange floating rate for fixed rate interest payments periodically over the
life of the debt agreements.
At December 31, 1998 the Company had the following interest rate instruments in
effect (notional amount and fair value in millions):
<TABLE>
<CAPTION>
Notional Strike Period Fair value
Amount Rate
<S> <C> <C> <C> <C>
Interest swap $100.0 5.87% 12/98-12/01 $(0.3)
Interest collar $ 65.7 5.75% 12/98-12/00 (0.9)
5.45% ------
$(1.2)
------
</TABLE>
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Fair value of financial instruments
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
(in millions) Carrying Fair Carrying Fair
amount value amount value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 26.5 $ 26.5 $ 29.7 $ 29.7
Long term debt 300.8 306.8 - -
Derivatives (see above) - (1.2) - -
</TABLE>
The carrying amount of cash and cash equivalents approximates to fair value
because of the short term maturities of such instruments. For long term debt,
carrying amount approximates to fair value for variable rate debt and the fair
value of fixed rate debt is based on quoted market prices for the same or
similar debt. The fair value for derivatives is estimated based on current
settlement prices and comparable contracts using current assumptions.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, together with the report of
PricewaterhouseCoopers dated February 9, 1999 and quarterly financial
information, which are on pages 14 through 47 of the Report, are incorporated
herein by reference. The Financial Highlights on the inside front cover of the
Report are also incorporated herein by reference.
Item 9. Changes In and Disagreement with Accountants on Accounting and Financial
Disclosures
Until May 22, 1998 the Company was a subsidiary of GLCC. Accordingly the
Combined Financial Statements for the period ended December 31, 1997 were
audited by Ernst & Young LLP, the auditors of GLCC. The Company's management
sought independent advice from PricewaterhouseCoopers on certain aspects of the
spin-off from Great Lakes.
Following the consummation of the spin-off and the creation of Octel as a group
independent of GLCC, the Board of Directors believed that it was appropriate to
appoint PricewaterhouseCoopers as the auditors of Octel Corp. and all its UK and
US subsidiaries. PricewaterhouseCoopers were duly appointed on August 11, 1998.
Ernst & Young were never appointed as auditors of Octel Corp., so their
resignation was not required.
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PART III
Item 10. Directors and Executive Officers of the Registrant
Information under the heading "Management" set out in the proxy statement
relating to the, 1999 Annual Meeting of Stockholders dated May 11, 1999 (The
"Proxy Statement") is incorporated herein by reference.
Item 11. Executive Compensation
The information under the heading "Executive Compensation and Other Information"
in The Proxy Statement is incorporated herein by reference.
Item 12. Security of Ownership of Certain Beneficial Owners and Management
The information under the heading "Security Ownership of Certain Beneficial
Owners and Management" in The Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Note 16 on pages 45 and 46 of the Financial Statements is incorporated herein by
reference.
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements
The Consolidated Financial Statements of Octel Corp. and its
subsidiaries and related notes thereto, together with the
report thereon of PricewaterhouseCoopers dated February 9,
1999, appearing on pages 14 through 47 of the 1998 Annual
Report to Stockholders, are incorporated by reference in Item
8.
(2) Financial Statement Schedules
All financial statement schedules have been omitted since the
information required to be submitted has been included in the
financial statements or because they are either not applicable
or not required under the Rules of Regulation S-X.
(3) Exhibits
2.1 Transfer and Distribution Agreement, dated as of
April 24, 1998, between Great Lakes Chemical
Corporation ("GLCC") and the Registrant. (3)
3.1 Amended and Restated Certificate of Incorporation of
the Registrant. (1)
3.2 Amended and Restated By-laws of the Registrant. (1)
4.1 Form of Common Stock Certificate. (2)
4.2 Form of Rights Agreement between the Registrant and
First Chicago Trust Company of New York, as Rights
Agent. (2)
4.3 Form of Certificate of Designations, Rights and
Preferences of Series A Junior Participating
Preferred Stock of the Registrant. (2)
4.4 Indenture dated as of May 1, 1998 among the
Registrant, Octel Developments PLC and the IBJ
Schroder Bank and Trust Company, as trustee. (4)
4.5 Form of 10% Senior Notes (contained in Exhibit 4.4
as Exhibit A). (4)
4.6 Registration Rights Agreement dated as of April 30,
1998 among the Registrant, Octel
Developments PLC and the initial purchasers. (1)
4.7 Purchase Agreement dated as of April 30, 1998 among
the Initial Purchasers, Octel Developments
PLC and the Registrant. (4)
10.1 Tax Disaffiliation Agreement between GLCC and the
Registrant. (1)
10.2 Corporate Services Transition Agreement between GLCC
and the Registrant. (1)
10.3 Supply Agreement between GLCC and the Registrant for
the supply of ethylene dibromide. (1)
10.4 Supply Agreement between GLCC and the Registrant for
the Supply of anhydrous hydrogen bromide.
(1)
10.5 Supply Agreement for the Supply of 10% sodium
hydroxide solution. (1)
10.6 Ethyl Corporation Market and Sales Agreement. (4)
10.7 Octel Corp. Non Employee Directors Stock Option
Plan. (4)
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10.8 Employment Agreement between Associated Octel Limited
and Steve W Williams, Geoff J Hignett, Graham M
Leathes and Robert A Lee. (1)
10.9 Employment Agreement between Associated Octel Limited
and Dennis J Kerrison. (1)
10.10 Agreement between GLCC and the Registrant for the
Toll Manufacture of Stadis Product. (4)
10.11 Octel Corp. Time Restricted Stock Option Plan. (3)
10.12 Octel Corp. Performance Related Stock Option
Plan. (3)
10.13 Associated Octel Savings-Related Stock Option
Plan. (3)
10.14 Form of Octel Corp. Approved Company Share Option
Plan.
10.15 Form of Octel Corp. Profit Sharing Share Scheme.
12.1 Statement Regarding Computation of Financial Ratios.
13.1 1998 Annual Report of Octel Corp.
13.2 Opinion of Ernst & Young LLP on 1997 combined
financial statements.
21.1 Subsidiaries of the Registrant.
24.1 Powers of Attorney of Directors and Officers of the
Registrant. (4)
27.1 Consolidated Financial Data Schedule.
(1) Incorporated by reference to the Company's
amendment dated April 21, 1998, to a
previously filed Form 10-/A.
(2) Incorporated by reference to the Company's
Form 10-/A previously filed on April 10,
1998.
(3) Incorporated by reference to the Company's
amendment dated May 4, 1998 to a previously
filed form 10-/A.
(4) Incorporated by reference to the Company's
form S-4 previously filed on October 1,
1998.
(5) Filed with the Company's form 10Q on
November 10, 1998
(b) Reports on Form 8-K
The Company did not file any current reports on Form 8-K
during the last quarter of the period covered by this report.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OCTEL CORP. By: /s/ DENNIS J KERRISON
(Registrant) President, Chief
Date: March 19, 1999 Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
March 19, 1999 /s/ Alan G Jarvis
---------------------------------------------
Alan G Jarvis, Vice President
and Chief Financial Officer
March 19, 1999 /s/ Robert E Bew
---------------------------------------------
Dr Robert E Bew, Chairman and Director
March 19, 1999 /s/ Dennis J Kerrison
---------------------------------------------
Dennis J Kerrison, President, Chief Executive
Officer and Director
March 19, 1999 /s/ Martin M Hale
---------------------------------------------
Martin M Hale, Director
March 19, 1999 /s/ Thomas M Fulton
---------------------------------------------
Thomas M Fulton, Director
/s/ James Puckridge
March 19, 1999 ---------------------------------------------
James Puckridge, Director
March 19, 1999 /s/ Benito Fiore
---------------------------------------------
Dr Benito Fiore, Director
March 19, 1999 /s/ Charles M Hale
---------------------------------------------
Charles M Hale, Director
March 19, 1999 /s/ Steven W Williams
---------------------------------------------
Steven W Williams, Vice President,
Group Operations
March 19, 1999 /s/ H Alan Hanslip
---------------------------------------------
H Alan Hanslip, Vice President, Human
Resources
March 19, 1999 /s/ Geoffrey J Hignett
---------------------------------------------
Dr Geoffrey J Hignett, Vice President,
Specialty Chemicals
16
<PAGE>
EXHIBIT 10.14
OCTEL CORP.
- --------------------------------------------------------------------------------
RULES
of the
OCTEL CORP. COMPANY SHARE OPTION PLAN
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Approval by the Company's Board of Directors on 10 May 1998
and by the Company's Stockholder on
PRICEWATERHOUSECOOPERS
Benson House
33 Wellington Street
Leeds
LS1 4JP
17
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The Rules Of The Octel Corp. Company Share Option Plan
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CONTENTS
1. DEFINITIONS FOR THE PURPOSE OF PART A......................................20
2. GRANT OF OPTIONS...........................................................24
2.1 Procedure for Grant of Options.........................................24
2.2 Requirement to Issue Option Certificate................................25
2.3 Right to Disclaim Option...............................................25
2.4 Options may not be transferred.........................................25
3. CONDITIONS RELATING TO THE GRANT OF OPTIONS................................26
3.1 Statutory Limit........................................................26
3.2 Interpretation of Individual Limits....................................26
3.3 Calendar Year Limitation...............................................26
3.4 Maximum Aggregate Number Of Shares.....................................26
3.5 United States Securities Act Of 1933...................................27
3.6 Additional Conditions....................................................
4. RIGHTS OF EXERCISE.........................................................27
4.1 Earliest Date of Exercise..............................................27
4.2 Requirement to remain in Employment....................................28
4.3 Death of Option Holder.................................................28
4.4 Right to Exercise Prematurely..........................................28
4.5 Extended Exercise Period...............................................29
4.6 Transfer of Employment within Group....................................29
4.7 Transfer of Employment Overseas........................................30
4.8 Lapse of Options.......................................................30
4.9 Compliance with the United States Securities Laws......................31
4.10Shares to be held for Investment Purposes..............................31
4.11Shareholder Approval...................................................31
4.12Option Holder with Material Interest...................................32
5. TAKE-OVER, RECONSTRUCTION AND AMALGAMATION AND LIQUIDATION.................32
5.1 Take-over pursuant to Tender Offer.....................................32
5.2 Take-over pursuant to Scheme of Arrangement............................32
5.3 Scheme of Arrangement without Change of Control........................32
5.4 Compulsory Acquisition of Shares.......................................33
5.5 Voluntary Winding Up of the Company....................................33
5.6 Meaning of Obtaining Control...........................................33
5.7 Rollover of Options....................................................33
5.8 Meaning of "appropriate period"........................................34
6. MANNER OF EXERCISE.........................................................34
6.1 Actions Required of the Option Holder..................................34
6.2 Actions Required of the Company........................................34
6.3 Partial Exercise.......................................................34
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7. ISSUE OF SHARES............................................................34
7.1 Ranking of Shares......................................................34
7.2 Admission to the New York Stock Exchange...............................35
8. ADJUSTMENTS................................................................35
8.1 General Power of Adjustment............................................35
8.2 Requirement to Capitalise Reserves.....................................35
8.3 Notification of Option Holders.........................................35
9. ADMINISTRATION.............................................................36
9.1 Delivery of Notices or Documents.......................................36
9.2 Copies of Shareholder Communications...................................36
9.3 Maintenance of Unissued Share Capital..................................36
9.4 Directors'Power to Administer Plan.....................................36
9.5 Directors'Decisions are Final and Conclusive...........................36
9.6 Costs of Administering Plan............................................36
10. ALTERATIONS...............................................................36
10.1 Power to alter Rules prior to Inland Revenue approval.................36
10.2 Power to alter Rules following Inland Revenue approval................37
10.3 Alteration which affects subsisting rights of Option Holders..........37
10.4 Notification to Option Holders........................................37
11. GENERAL...................................................................37
11.1 Termination of the Plan...............................................37
11.2 No Compensation for loss of Option Rights.............................37
11.3 Governing Law.........................................................37
12. DEFINITIONS FOR PURPOSES OF PART B........................................38
12.1 Part B not Approved by Inland Revenue.................................38
12.2 Terms of Part A apply except as amended...............................38
13. GRANT OF UNAPPROVED OPTIONS...............................................38
13.1 Specification of Unapproved Option....................................38
13.2 Modified Terms and Conditions.........................................38
13.3 Additional Requirements...............................................38
14. CONDITIONS RELATING TO THE GRANT OF UNAPPROVED OPTIONS....................39
15. EXERCISE OF UNAPPROVED OPTIONS............................................39
16. DISCRETION TO PAY CASH ON EXERCISE OF AN OPTION...........................39
17. EMPLOYMENT AND SOCIAL TAXES...............................................39
19
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The Rules Of The Octel Corp. Company Share Option Plan
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PART A APPROVED BY THE INLAND REVENUE UNDER THE INCOME AND
CORPORATION TAXES ACT 1988 ON [ ] UNDER REFERENCE [ ]
1. DEFINITIONS FOR THE PURPOSE OF PART A
In this Plan, the following words and expressions shall, where the context so
permits, have the meanings set forth below:
"Acquiring Company" the person mentioned in Rule 5.1, being
a company within the meaning of Section
832 of the Act;
"Acquisition Price" in relation to an Option, the total
amount payable on any exercise being an
amount equal to the relevant Share Price
multiplied by the number of Shares in
respect of which the Option is
exercised;
"the Act" the Income and Corporation Taxes Act
1988;
"Associated Company" the meaning ascribed by Section 416 of
the Act;
"the Auditors" the auditors for the time being of the
Company acting as experts and not as
arbitrators;
"the Code" the United States Federal Internal
Revenue Code of 1986 (as amended);
"the Company" save as provided in Rule 5.7, Octel
Corp., a Delaware corporation;
"Control" the meaning ascribed by Section 840 of
the Act;
"Date of Grant" the date on which the Directors resolve
to grant an Option under the Plan
pursuant to Rule 2;
"Dealing Day" a day on which the New York Stock
Exchange is open for business;
"the Directors" the board of directors of the Company,
or a duly authorised committee thereof;
20
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The Rules Of The Octel Corp. Company Share Option Plan
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"Eligible Employee" any person who
(1) (a) is a director of a
Participating Company required
to work for not less than 25
hours a week (exclusive of
meal breaks); or
(b) if not a director, is
employed by a
Participating Company on
terms which require him
to work for not less than
20 hours a week
(exclusive of meal
breaks); and
(2) is not ineligible to
participate in the Plan
by virtue of paragraph 8
of Schedule 9 to the Act
(material interest in a
close company); and does
not own within the
meaning of Section
422(b)(6) of the Code to
own Shares possessing
more than ten per cent of
the total combined voting
power of all classes of
share of the Company (or
it its Parent or any of
its subsidiaries);
"Grant Period" a period of 20 days commencing on the
Dealing Day following any of:
(1) a day on which the Plan is
approved by the Inland Revenue
under the Act; or
(2) a day on which the Company
makes an announcement of its
results for any year, half
year or other period or issues
any prospectus, listing
particulars or other document
containing equivalent
information relating to
Shares; or
(3) a day on which the Directors
resolve that exceptional
circumstances have arisen
which justify the grant of
Options; or
21
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The Rules Of The Octel Corp. Company Share Option Plan
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(4) a day on which any
announcement is made of
modifications to be made to
the Act or a day on which any
such modifications come into
force;
"Group" the Company and its Subsidiaries;
"Holding Company" in relation to the Acquiring Company, a
company falling within the definition in
Section 736 of the Companies Act 1985;
"Incentive Stock Option" an option which qualifies for relief
under Section 422 of the Code;
"Listing" the meaning ascribed in Article
4.4.1(b)(ii) of the Articles of
Association of the Company;
"Market Value" in relation to a Share on any day:
(1) if and so long as the Shares
are listed on the New York
Stock Exchange, the reported
closing price of Octel Corp.
common stock on the New York
Stock Exchange for that day,
or the last Dealing Day prior
to that day if that day is not
a Dealing Day.
(2) save as mentioned in (1)
above, its market value as
determined in accordance with
Part VIII of the Taxation of
Chargeable Gains Act 1992 and
agreed in advance with the
Shares Valuation Division of
the Inland Revenue;
"Option" a right to acquire Shares pursuant to
the Plan;
"Option Certificate" a certificate issued under Rule 2.2;
"Option Holder" a person to whom an Option has been
granted (or, as the context requires,
his personal representatives);
22
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The Rules Of The Octel Corp. Company Share Option Plan
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"Parent" any company which is a parent
corporation of the Company within the
meaning of Section 424(e) of the Code;
"Participating Company" the Company and any other company for
the time being designated by the
Directors as a Participating Company
being a company which is both a
Subsidiary of the Company and under the
Control of the Company;
"the Plan" the Octel Corp. Company Share Option
Plan in its present form, or as from
time to time altered in accordance with
the Rules;
"Relevant Share Option Scheme" any other share option scheme (except a
Savings Related Share Option Scheme)
established by the Company or any
Associated Company;
"Rules" the Rules of the Plan and "Rule" shall
be construed accordingly;
"Savings Related Share Option Scheme" a savings related share option scheme
approved by the Inland Revenue under the
Act;
"Securities Act" the United States Securities Act of 1933
as amended;
"Share" save as provided in Rule 5.7, a share in
the Company satisfying paragraphs 10 to
14 inclusive of Schedule 9 to the Act;
"Share Price" the price per Share, as determined by
the Directors, at which an Eligible
Employee may acquire Shares in respect
of which an Option has been granted to
him, being not less than:
23
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The Rules Of The Octel Corp. Company Share Option Plan
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(1) the Market Value of a Share on
the Date of Grant (or where in
accordance with Rule 2.1, the
Directors issue invitations to
apply for Options the Dealing
Day by reference to which the
Market Value is calculated);
or
(2) if greater and Shares are to
be subscribed, the nominal
value of a Share,
subject to any adjustment pursuant to
Rule 8.1;
"Statutory Limit" (pound)30,000 or any other limit from
time to time specified under paragraph
28 of Schedule 9 to the Act;
"Subsidiary" any company which is both a subsidiary
within the meaning ascribed by Section
736 of the Companies Act 1985 and a
subsidiary corporation within the
meaning of Section 424(f) of the Code;
References to any statutory provision are to that provision as amended or
re-enacted from time to time, and, unless the context otherwise requires, words
in the singular shall include the plural (and vice versa) and words importing
the masculine the feminine (and vice versa).
2. GRANT OF OPTIONS
2.1. Procedure for Grant of Options
a Within a Grant Period, the Directors may, at their absolute
discretion, grant Options under the Plan to Eligible Employees.
b The Directors may adopt such procedure as they think fit for granting
Options, whether by invitation to Eligible Employees to apply for
Options or by granting Options without issuing invitations, PROVIDED
THAT any documentation used in such procedure is approved in advance
by the Inland Revenue in accordance with Rule 10.2
c Where an Option is to be granted pursuant to an invitation and the
Share Price is determined at the date of the invitation, the Option
must be granted no later than the twenty-ninth day in the period
commencing with the Dealing Day by reference to which the Share Price
was calculated.
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The Rules Of The Octel Corp. Company Share Option Plan
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2.2. Requirement to Issue Option Certificate
The Company shall issue to each Option Holder an Option Certificate which
shall be executed in such manner as shall take effect as a binding
contractual obligation of the Company and which shall be in such a form as
the Directors from time to time determine (subject to the approval of the
Inland Revenue). The Option Certificate shall include details of:
a the Date of Grant of the Option;
b the Share Price; and
c the number of Shares subject to the Option; and
d any date or dates determined by the Directors in accordance with Rule
3.6 upon which the Option is first exercisable in whole and/or part
and, where on any date only part is first exercisable, the number of
Shares over which such partial exercise may be made[; and
e the performance targets or conditions to be satisfied as a condition
of the exercise of the Option in accordance with Rule 3.6.]
2.3. Right to Disclaim Option
Each Eligible Employee to whom an Option is granted may by notice in
writing within 30 days of the Date of Grant disclaim in whole or in part
his rights under the Option in which case the Option shall for all purposes
be deemed never to have been granted.
2.4. Options may not be transferred
Subject to the rights of an Option Holder's personal representatives to
exercise an Option as provided in Rule 4.3, every Option shall be personal
to the Eligible Employee to whom it is granted and shall not be capable of
being transferred, assigned or charged. Each Option Certificate shall carry
a statement to this effect.
25
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3. CONDITIONS RELATING TO THE GRANT OF OPTIONS
3.1. Statutory Limit
Any Option granted to an Eligible Employee shall be limited and take effect
so that immediately following such grant, the aggregate Market Value of all
the Shares which he may acquire on the exercise of all options which he
then holds and which are or may become capable of being exercised and which
were granted under:
a Part A of the Plan; and
b any Relevant Share Option Scheme approved by the Inland Revenue under
the Act shall not exceed the Statutory Limit.
3.2. Interpretation of Individual Limits
a For the purposes of Rule 3.1, the Market Value of an Option shall be
taken as at its Date of Grant and in relation to options granted under
any Relevant Share Option Scheme the Market Value of an option shall
be taken as being the fair market value of the Shares subject to that
option at its date of grant determined in accordance with the Rules of
such other scheme.
b For the purposes of determining the application of the statutory Limit
in Rule 3.1, the rate of exchange for US dollar into sterling shall be
the noon fixed rate for US dollars in the Wall Street Journal on the
Date of Grant of the Option.
3.3. Calendar Year Limitation
The aggregate Market Value (determined at the Date of Grant) of Shares with
respect to which Incentive Stock Options first become exercisable by any
individual Option Holder in any calendar year shall not exceed $100,000.
3.4. Maximum Aggregate Number Of Shares
The present maximum aggregate number of Shares which may be issued under
the Plan is [ ] subject to any future increase in this limit which may be
substituted at the discretion of the Directors.
26
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The Rules Of The Octel Corp. Company Share Option Plan
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3.5. United States Securities Act Of 1933
The grant of any Option under the Plan to any person subject to United
States securities laws shall be subject to fulfilling the requirements
(including obtaining any required approval or consent) of the provisions of
the Securities Act or of any applicable regulation or enactment. The
Options have not been, and will not be, registered under the Securities
Act, or under any other securities laws in any other jurisdiction in the
United States. Shares issued pursuant to the exercise of an Option will be
registered on Form S-8. Until so registered, any transfer of such Shares
may be restricted.
3.6. Additional Conditions
The Directors when granting any Option may in their absolute
discretion impose any conditions and limitations (additional to any
conditions and limitations contained in any other of these Rules) upon
the exercise of any Option provided that such additional conditions
and limitations shall: -
i be objective, specified at the Date of Grant and set out in full, or
details given with, the Option Certificate: and
ii be such that the right to exercise any Option after the fulfilment or
attainment of the conditions and limitations so specified shall not be
dependent upon the further discretion of any person; and
iii not be capable of amendment, variation or waiver unless an event
occurs which causes the Directors to consider that a waived, varied or
amended condition would be a fairer measure of performance and would
be no more difficult to statisfy. When such conditions or limitations
have been imposed and have ceased to be capable of being satisfied or
being satisfied in full [except as a result of an event to which
Rules: 4.7, 4.8 or 5 apply ] that Option shall lapse in whole or in
part as the case may be.
4. RIGHTS OF EXERCISE
4.1. Earliest Date of Exercise
Save as provided in Rules 4.3, 4.4 and 5 an Option may not be exercised
before whichever is the latest of:
a Listing; and
b the third anniversary of the Date of Grant; and
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The Rules Of The Octel Corp. Company Share Option Plan
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c any date or dates which may have been specified in accordance with
Rule 2.2 in the relevant Option Certificate; and
any additional conditions and limitations imposed on the Option (and which
have not be waived) in accordance with Rule 3.6 have been fulfilled.
but in any event may not be exercised later than the day preceding the
tenth anniversary of the Date of Grant.
4.2. Requirement to remain in Employment
Save as provided in Rules 4.3, 4.4, 4.5 and 5, an Option may only be
exercised by an Option Holder while he is a director or employee of a
Participating Company or an Associated Company of a Participating Company.
4.3. Death of Option Holder
An Option may be exercised by the personal representatives of a deceased
Option Holder during the period of one year following the date of death.
4.4. Right to Exercise Prematurely irrespective of Additional Conditions
An Option may be exercised by an Option Holder within the period of one
year following the date on which he ceases to hold any office or employment
with a Participating Company or an Associated Company of a Participating
Company on account of:
a injury, ill-health or disability; or
b redundancy (within the meaning of the Employment Rights Act 1996); or
c the transfer of the undertaking or part-undertaking in which the
Option Holder is employed to a person other than a Participating
Company or an Associated Company of a Participating Company; or
d the Company by which the Option Holder is employed ceasing to be under
the Control of the Company.
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4.5. Right to Exercise Prematurely if Additional Conditions Achieved
If any additional conditions and limitations imposed on the Option (and
which have not been waived) in accordance with Rule 3.6 have been fulfilled
an Option may be exercised by an Option Holder within the period of one
year following the date on which he ceases to hold any office or employment
with a Participating Company or an Associated Company of a Participating
Company on account of:
a retirement at contractual retirement age including late retirement; or
b early retirement by agreement with his employer; or
c any other reason in the absolute discretion of the Directors.
4.6. Extended Exercise Period
Where an Option Holder ceases employment on account of any of the reasons
set out in Rules 4.4 or 4.5 prior to the date which is three years and six
months after the relevant Date of Grant, or the date on which he last
exercised an option under a Relevant Share Option Scheme (whichever is
later), he may in addition (at the discretion of the Directors) exercise
the Option at any time within whichever of the following periods is
applicable:
a in relation to Rule 4.4, the period which starts on the date his
employment ceases and ends six months after the earliest date on which
he could exercise the Option without incurring any liability to income
tax in consequence thereof; or
b in relation to Rule 4.5, the period which begins on the first date by
reference to which it may be established (if relevant) that the
condition specified in Rule 3.6has been satisfied and ends six months
after the earliest date on which he could exercise the Option without
incurring any liability to income tax in consequence thereof;
but in no case may an Option be exercised more than 42 months after the
date the Option Holder's employment ceased.
4.7. Transfer of Employment within Group
An Option Holder shall not be treated for the purposes of Rules 4.4, 4.5,
and 4.8as ceasing to hold an office or employment with a Participating
Company until such time as he is no longer a director or employee of any
Participating Company or an Associated Company of a Participating Company
and an Option Holder (being a woman) who ceases to be such a director or
employee by reason of pregnancy or confinement and who exercises her right
to return to work under section 79 of the
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Employment Rights Act 1996 before exercising an Option shall be treated for
those purposes as not having ceased to hold such an office or employment.
4.8. Transfer of Employment Overseas
Subject to the satisfaction of any additional conditions and limitations
imposed pursuant to Rule 3.6 if an Option Holder, whilst remaining a
director or employee of a Participating Company or an Associated Company of
a Participating Company, is transferred to work in another country and as a
result of that transfer will either
a become subject to tax on his remuneration in the country to which he
is transferred and the Directors are satisfied that as a result he
will suffer a tax disadvantage upon exercising an Option; or
b become subject to restrictions on his ability to exercise his Option
or to hold or deal in the shares or the proceeds of the sale of the
shares he may acquire on exercise of that Option by reason of or in
consequence of the securities laws or exchange control laws of the
country to which he is transferred
the Option Holder may exercise that Option in the period commencing three
months before and ending three months after the transfer takes place. If he
chooses not to exercise his Option at that time, it will not thereby lapse.
4.9. Lapse of Options
An Option shall lapse on the occurrence of the earliest of the following:
a the tenth anniversary of the Date of Grant; or
b the expiry of the period (if any) allowed for the satisfaction of any
condition of exercise specified in the Option Certificate pursuant to
Rule 3.3 without such condition having been satisfied or the date on
which it becomes apparent that any such condition has become incapable
of being satisfied; or
c subject to Rule 5.7, the expiry of any of the applicable periods
specified in Rules 4.3, 4.5, 4.6, 5.1, 5.2, 5.3, 5.4, and 5.5, but
where an Option Holder dies while time is running under Rules 4.5 or
4.6, the Option shall not lapse until the expiry of the period in Rule
4.3; or
d the date on which an Option Holder ceases to be a director or employee
of any Participating Company or any Associated Company of a
Participating Company for any reason other than his death or those
specified in Rules 4.5 and 4.6; or
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The Rules Of The Octel Corp. Company Share Option Plan
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e the date on which a resolution is passed, or an order is made by
the Court, for the compulsory winding-up of the Company; or
f the date on which the Option Holder becomes bankrupt or does or
attempts or omits to do anything as a result of which he is
deprived of the legal or beneficial ownership of the Option.
4.10. Compliance with the United States Securities Laws
Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities
Act, the United States Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder, and the requirements of
any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of Counsel for the
Company with respect to such compliance.
4.11. Shares to be held for Investment Purposes
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant
at the time of any such exercise that the shares are being
purchased only for investment and without any present intention to
sell or distribute such shares if, in the opinion of Counsel for
the Company, such a representation is required in order to comply
with any of the aforementioned relevant provisions of law.
4.12. Shareholder Approval
If any amendment requiring the approval of the Company's
Shareholders is made subsequent to the first registration of any
class of equity security by the Company under Section 12 of the
Securities Exchange Act of 1934, such shareholder approval shall
be:
(a) solicited substantially in accordance with Section 14(a) of that
Act and the rules and regulations promulgated thereunder; or
(b) solicited after the Company has furnished in writing to the
holders entitled to vote substantially the same information
concerning the Plan as that which would be required by the rules
and regulations in effect under Section 14(a) of that Act at the
time such information is furnished.
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4.13. Option Holder with Material Interest
An Option may not be exercised by an Option holder at any time
when he is prohibited from such exercise by virtue of the
provisions of paragraph 8 of Schedule 9 to the Act (material
interest in a close company).
5. TAKE-OVER, RECONSTRUCTION AND AMALGAMATION AND LIQUIDATION
5.1. Take-over pursuant to Tender Offer
If any person obtains Control of the Company as a result of making either
a tender offer to acquire the whole of the Company's issued share capital
(other than any shares already owned by the Holding Company or any
Subsidiary of the Holding Company) and which is made on a condition that
if it is satisfied the offer or will have such Control, or a tender offer
to acquire all the Shares in the Company which are of the same class as
the Shares then an Option may be exercised within the period of six
months of the date on which Control is so obtained and any condition
subject to which the offer is made is satisfied (or until the expiry of
the period mentioned in Rule 5.4, if earlier).
5.2. Take-over pursuant to Scheme of Arrangement
If any person obtains Control of the Company in pursuance of a compromise
or scheme of arrangement sanctioned by the Court under legislation which
the Inland Revenue has agreed is equivalent to Section 425 of the
Companies Act 1985 then an Option may be exercised during the period
which starts on the date the Court sanctions such scheme of arrangement
and ends six months later or, if earlier, on the day immediately
preceding the date upon which the scheme shall become effective.
5.3. Scheme of Arrangement without Change of Control
If, without any person obtaining Control of the Company, the Court
sanctions a scheme of arrangement affecting the Shares under legislation
which the Inland Revenue has agreed is equivalent to Section 425 of the
Companies Act 1985 then an Option may be exercised during the period
which starts on the date the Court sanctions such scheme of arrangement
and ends six months later or, if earlier, on the day immediately
preceding the date upon which the scheme shall become effective.
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5.4. Compulsory Acquisition of Shares
If any person becomes bound or entitled to acquire Shares in the Company
under legislation which the Inland Revenue has agreed is equivalent to
Sections 428 to 430 of the Companies Act 1985 then an Option may be
exercised during any period such person remains so bound or entitled.
5.5. Voluntary Winding Up of the Company
If a resolution is passed for the voluntary winding-up of the Company, an
Option may be exercised during the period of six months starting on the
commencement of such winding-up provided that any issue of shares
pursuant to such exercise is authorised by the liquidator or the Court
(if appropriate) upon the application of and at the sole cost and expense
of the Option Holder.
5.6. Meaning of Obtaining Control
For the purpose of this Rule 5, a person shall be deemed to have obtained
Control of the Company if he and others acting in concert with him have
together obtained Control.
5.7. Rollover of Options
Notwithstanding anything to the contrary in these Rules, where any person
mentioned in Rule 5.1 is a company an Option Holder may, by agreement
with the Acquiring Company and within the appropriate period release his
Option under the Plan ("the Old Option") in consideration of the grant to
him of a new Option ("the New Option") which, within the meaning ascribed
by paragraph 15(3) of Schedule 9 to the Act, is equivalent to the Old
Option but relates to shares in a different company (whether the
Acquiring Company or some other company falling within sub-paragraph (b)
or (c) of paragraph 10 of Schedule 9 to the Act. With effect from the
date of release references in Rules 4, 5, 6, 7, 8, 9, 10 and 11 (and, in
relation to expressions used in those Rules, in Rule 1) to "the Company"
and "Shares" shall, in relation to the New Option, be construed as
references to the Acquiring Company and Shares in the Acquiring Company
or that other company as the case may be, but references to Participating
Company shall continue to be construed as if references to the Company
were references to Octel Corp..
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5.8. Meaning of "appropriate period"
For the purpose of Rule 5.7, the "appropriate period" is:
a where Rules 5.1 or 5.4 apply, the periods mentioned in those Rules
respectively; or
b where Rule 5.2 applies, the period of six months beginning with
the time when the Court sanctions the scheme of arrangement.
6. MANNER OF EXERCISE
6.1. Actions Required of the Option Holder
An Option may be exercised, in whole or in part, by the delivery to the
secretary of the Company, or his duly appointed agent, of an Option
Certificate covering not less than all the Shares over which the Option
is then to be exercised, with the notice of exercise in the prescribed
form duly completed and signed by the Option Holder together with a
remittance for the Acquisition Price payable in respect of the Shares
over which the Option is to be exercised.
6.2. Actions Required of the Company
The relevant Shares shall be allotted or transferred (as the case may be)
within 28 days following such delivery and, accordingly in cases where
Shares are to be transferred, the Company shall use its best endeavours
to ensure due transfer thereof. At the request of the Option Holder, the
Shares may be allotted or transferred (as the case may be) to a nominee
provided the Option Holder has beneficial ownership of the Shares at the
time of such allotment or transfer.
6.3. Partial Exercise
Where an Option is exercised in part the minimum number of Shares which
may be exercised is 100 Shares and the Company shall issue a balancing
Option Certificate to the Option Holder.
7. ISSUE OF SHARES
7.1. Ranking of Shares
All Shares issued pursuant to the exercise of Options under the Plan
shall as to voting, dividend, transfer and other rights (including those
arising on a liquidation) rank pari passu in all respects with the Shares
then in issue, except that they shall not rank for any dividend or other
rights declared by reference to a record date preceding the date of such
exercise.
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7.2. Admission to the New York Stock Exchange
If and so long as the Shares are listed on the New York Stock Exchange
the Company shall use its best endeavours to procure that as soon as
practicable after the allotment of any Shares pursuant to the Plan
application shall be made to the New York Stock Exchange for permission
to deal in those shares unless such application has already been made.
8. ADJUSTMENTS
8.1. General Power of Adjustment
The number of Shares over which an Option is granted and the Share Price
thereof may, subject to the prior approval of the Inland Revenue, be
adjusted in such manner as the Directors shall determine following any
capitalisation issue, subdivision, consolidation or reduction of share
capital and in respect of any discount element in any rights issue or
other variation of share capital to the intent that (as nearly as may be
possible without involving fractions of a Share or a Share Price
calculated to more than two places of decimals) the Acquisition Price
payable in respect of an Option shall remain unchanged PROVIDED that,
save as provided in Rules and 7.2, no adjustment made pursuant to this
Rule 7.1 shall have the effect of reducing the Share Price below the par
value of a Share.
8.2. Requirement to Capitalise Reserves
Any adjustment made to the Share Price of unissued Shares which would
have the effect of reducing the Share Price to less than the par value of
the Share shall only be made if and to the extent that the Directors are
authorised to capitalise from the reserves of the Company a sum equal to
the amount by which the par value of the Shares in respect of which the
Option is exercisable exceeds the adjusted Share Price. The Directors may
apply such sum in paying up such amount on such Shares so that on the
exercise of any Option in respect of which such a reduction shall have
been made, the Directors shall capitalise such sum (if any) and apply the
same in paying up such amount as aforesaid.
8.3. Notification of Option Holders
The Directors may take such steps as they may consider necessary to
notify Option Holders of any adjustments made under Rule 8.1 and to call
in, cancel, endorse, issue or re-issue any Option Certificate consequent
upon such adjustment.
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9. ADMINISTRATION
9.1. Delivery of Notices or Documents
Notices or documents required to be given to an Eligible Employee or to
an Option Holder shall either be delivered to him by hand or sent to him
by post at his last known home or business address according to the
information provided by him. Notices sent by post shall be deemed to have
been given on the day following the date of posting.
9.2. Copies of Shareholder Communications
The Company may distribute to Option Holders copies of any notice or
document sent by the Company to its shareholders generally.
9.3. Maintenance of Unissued Share Capital
The Company shall at all times either keep available sufficient unissued
Shares to satisfy the exercise of all Options which have neither lapsed
nor been exercised (taking account of any other obligations of the
Company to allot unissued Shares) or shall ensure that sufficient issued
Shares will be available to satisfy the exercise of such Options.
9.4. Directors' Power to Administer Plan
The Directors may make such regulations for the administration of the
Plan as they deem fit, provided that no regulation shall be valid to the
extent it is inconsistent with the Rules.
9.5. Directors' Decisions are Final and Conclusive
The decision of the Directors in any dispute relating to an Option, or
the due exercise thereof, or any other matter in respect of the Plan,
shall be final and conclusive.
9.6. Costs of Administering Plan
The costs of introducing and administering the Plan shall be borne by the
Company.
10. ALTERATIONS
10.1. Power to alter Rules prior to Inland Revenue approval
The Directors may, prior to approval of Part A of the Plan under the Act
by the Inland Revenue, alter the Rules of the Plan as may be necessary in
order to obtain such approval.
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10.2. Power to alter Rules following Inland Revenue approval
Subject to Rule 10.3, after the date on which Part A of the Plan is
approved by the Inland Revenue under the Act, the Directors may in their
discretion alter the Rules provided that no such alteration to Part A
shall be effective until it has been approved by the Inland Revenue.
10.3. Alteration which affects subsisting rights of Option Holders
No alteration may be made which would abrogate or adversely affect the
subsisting rights of Option Holders.
10.4. Notification to Option Holders
Written notice of any amendment made in accordance with this Rule 10
shall be given to all Option Holders.
11. GENERAL
11.1. Termination of the Plan
The Plan shall terminate on the tenth anniversary of the date on which it
is approved by the Company in general meeting or at any earlier time by
the passing of a resolution by the Directors. Termination of the Plan
shall be without prejudice to the subsisting rights of Option Holders.
11.2. No Compensation for loss of Option Rights
If an Option Holder shall cease for any reason to be in the employment of
a Participating Company or an Associated Company of a Participating
Company, he shall not be entitled, by way of compensation for loss of
office or otherwise howsoever, to any sum or any benefit to compensate
him for the loss of any right or benefit accrued or in prospect under the
Plan.
11.3. Governing Law
This Plan and all Options shall be governed by and construed in
accordance with English law.
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PART B
12. DEFINITIONS FOR PURPOSES OF PART B
12.1. Part B not Approved by Inland Revenue
This Part B of the Rules of the Plan is not approved by the Inland
Revenue under the provisions of the Act.
12.2. Terms of Part A apply except as amended
The Rules as contained in Part A of the Plan shall apply to Options
granted under this Part B unless amended in accordance with the
provisions hereof.
13. GRANT OF UNAPPROVED OPTIONS
13.1. Specification of Unapproved Option
The Directors shall specify when an Option is granted under this Part B
of the Rules of the Plan and the relevant Option Certificate shall be
written accordingly.
13.2. Modified Terms and Conditions
The Directors may determine that any Option granted under this Part B of
the Rules shall be subject to additional and/or modified terms and
conditions relating to the grant and terms of exercise as may be
necessary to comply with or take account of any securities, exchange
control or taxation laws, regulations or practice of any territory which
may have application to the relevant Eligible Employee, Option Holder or
Participating Company.
13.3. Additional Requirements
In exercising their discretion under Rule 13.2, the Directors may:
a require an Option Holder to make such declarations or take such
other action (if any) as may be required for the purpose of any
securities, taxes or other laws of any territory which may be
applicable to him at the Date of Grant or on exercise; and
b adopt any supplemental rules or procedures governing the grant or
exercise of Options as may be required for the purpose of any
securities, tax or other laws of any territory which may be
applicable to an Eligible Employee or Option Holder.
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14. CONDITIONS RELATING TO THE GRANT OF UNAPPROVED OPTIONS
Rule 3.1 of Part A shall not apply to this Part B of the Plan.
15. EXERCISE OF UNAPPROVED OPTIONS
Rule 4.12 of Part A shall not apply to Part B of the Plan.
16. DISCRETION TO PAY CASH ON EXERCISE OF AN OPTION
If an Option Holder exercises an Option the Directors may in lieu of allotting
or procuring the transfer of Shares in accordance with Rule 6.2 of Part A pay to
such Option Holder a cash sum equal to the amount by which the value of the
Shares in respect of which the notice of exercise was given (calculated as the
average of the middle market quotations on the New York Stock Exchange for the
three Dealing Days prior to the date of exercise) exceeds the Acquisition Price
of those Shares.
If payment is made pursuant to this Rule to an Option Holder, he shall have no
further rights in respect of the Shares for which the notice of exercise was
given. The Company may make any deductions in respect of such payment which it
is required to make under the laws of any territory which laws are applicable to
the Option Holder and/or his employing Participating Company.
No Option granted under Part B of the Plan will be paralleled with an Option
granted under Part A of the Plan.
17. EMPLOYMENT AND SOCIAL TAXES
The Option Holder shall indemnify the company (and, where relevant, any
Participating Company) against any tax arising in respect of the exercise of the
Option which is a liability of the Option Holder but for which such company is
required to account under the laws of any relevant territory. Such company may
recover the tax from the Option Holder in such manner as the Directors think fit
including (but without prejudice to the generality of the foregoing):-
a withholding shares when the Option is exercised and selling the same;
b deducting the necessary amount from the Option Holder's remuneration; or
c requiring the Option Holder to account directly to such company for such
tax.
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EXHIBIT 10.15
THE ASSOCIATED OCTEL COMPANY LIMITED
- and -
OCTEL PROFIT SHARING TRUST CO. LIMITED
TRUST DEED and RULES
of the
OCTEL PROFIT SHARING SHARE SCHEME
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CONTENTS
THIS DEED of TRUST............................................................44
1. DEFINITIONS...........................................................44
1.1 General..........................................................44
1.2 Clause Headings..................................................45
2. TRUSTS OF THE SCHEME..................................................45
2.1 Covenant to pay Amounts due in accordance with the Scheme........45
2.2 Trustee's Covenant to Apply Moneys in Acquisition of Shares......45
2.3 Appropriation in Accordance with Rules of the Scheme.............45
2.4 Holding of Shares pending Distribution...........................46
2.5 Payments of Money or Monies Worth................................46
2.6 Rights Issue in respect of Unappropriated Shares.................46
2.7 Use of Cash Balances.............................................46
2.8 Accounting for Moneys on Termination of the Scheme...............47
3. DIVIDENDS AND OTHER DISTRIBUTIONS.....................................47
4. GROUP COMPANIES.......................................................47
4.1 Addition of New Participating Companies..........................47
4.2 Company ceasing to be a Participating Company....................47
4.3 Provision of Information to Trustee..............................48
4.4 Company acts through Board of Directors..........................48
5. ACQUISITION OF SHARES.................................................48
5.1 Methods by which Shares may be acquired..........................48
5.2 Use of Sums not Applied in Acquisition of Shares.................48
6. ISSUE OF SHARES.......................................................49
6.1 Rights of Shares Subscribed by Trustee...........................49
6.2 Admission to the New York Stock Exchange.........................49
7. RETENTION OF SHARES...................................................49
7.1 No Disposal before Release Date..................................49
7.2 Disposals after Period of Retention and before Release Date......49
7.3 Sale by Participant after Period of Retention....................49
8. VOTING RIGHTS.........................................................50
9. NOTICES AND CIRCULARS.................................................50
9.1 Notices to Participants..........................................50
9.2 Circulars to Shareholders........................................50
10. RIGHTS ISSUES.......................................................50
10.1 Action by Trustee................................................50
10.2 Acquisition of New Shares........................................51
10.3 Trustee Requires Indemnity.......................................51
11. CAPITALISATION ISSUES...............................................51
12. SCRIP DIVIDENDS.....................................................51
12.1 Election by Trustee..............................................51
12.2 Shares shall not be Scheme Shares................................51
12.3 Cash Distribution................................................51
13. RECONSTRUCTIONS AND TAKE-OVERS......................................52
13.1 Participants shall be Notified...................................52
13.2 Consideration consisting of Cash.................................52
13.3 Compulsory Acquisition or Transfer of Shares.....................52
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14. ENTITLEMENTS........................................................52
14.1 Proportionate Allocation of Securities...........................52
14.2 Allocation of Securities forming part of holding of Scheme
Shares...........................................................53
15. INFORMATION.........................................................53
16. TRUSTEE'S POWERS OF DELEGATION......................................53
16.1 Delegation to Professional Person................................53
16.2 Delegation to Other Person or Company............................53
16.3 Revocation of Delegation.........................................53
16.4 Execution of Documents...........................................53
16.5 Deposit of Trust Property........................................54
17. ADMINISTRATION......................................................54
17.1 Trustee's Power to make Regulations..............................54
17.2 Decisions taken by Majority......................................54
17.3 Accounting for Tax...............................................54
17.4 Minimum Number of Trustees.......................................54
18. PROVISIONS RELATING TO THE TRUSTEE..................................55
18.1 Trustee's Indemnity..............................................55
18.2 Trustee's Interests..............................................55
18.3 Banker may be Trustee............................................55
18.4 Charges of Professional Trustee..................................55
18.5 Trustee not precluded from personal investment...................55
18.6 Information Supplied by Company..................................56
19. APPOINTMENT REMOVAL AND RETIREMENT OF TRUSTEES......................56
19.1 Statutory Power Vested in Company................................56
19.2 Power to Appoint Additional Trustees.............................56
19.3 Company Ceasing to Exist.........................................56
19.4 Removal of Trustee...............................................56
19.5 Retirement of Trustee............................................56
19.6 Transfer of Trust Property following Retirement..................57
19.7 Sole Continuing Trustee..........................................57
19.8 Trust Corporation................................................57
20. RESIDENCE OF THE TRUSTEES...........................................57
21. ALTERATIONS.........................................................57
22. TERMINATION.........................................................57
23. GENERAL.............................................................57
23.1 Governing Law....................................................57
23.2 Schedule One.....................................................58
schedule one: the rules.......................................................59
1. DEFINITIONS...........................................................59
2. INVITATIONS TO PARTICIPATE............................................65
2.1 Issue of Invitations.............................................65
2.2 Terms of Agreement...............................................65
2.3 Employee Electing not to Participate.............................66
3. PURCHASE OF SHARES FOR APPROPRIATION..................................66
3.1 Arrangements for Purchasing Shares...............................66
3.2 When Shares may not be Purchased.................................66
4. SUBSCRIPTION OF SHARES FOR APPROPRIATION..............................66
4.1 Arrangements for Subscription for New Shares.....................66
4.2 Timing of Contributions to Trustees..............................67
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5. APPROPRIATION OF SHARES...............................................67
5.1 Number of Appropriations.........................................67
5.2 Method of Appropriation..........................................67
5.3 Proportionate allocation of Shares which do not rank pari passu..68
5.4 Limitation to Relevant Amount....................................68
5.5 Evidence of share ownership......................................68
6. ISSUE OF SHARES.......................................................68
Shares to rank pari passu................................................68
7. DISPOSALS AND PAYMENT.................................................68
7.1 Prohibition on Disposal by Trustee...............................68
7.2 Accounting for Cash Receipts.....................................68
7.3 Accounting by Participating Company..............................69
8. TRANSFER OF LEGAL TITLE...............................................69
8.1 Transfer free of Income Tax......................................69
8.2 Transfer after Period of Retention...............................69
9. STAMP DUTY............................................................69
10. DISPUTES............................................................69
11. RIGHTS ON TERMINATION OF EMPLOYMENT.................................70
12. DUTY TO ACCOUNT FOR PAYE ETC........................................70
12.1 Deduction from Cash Payments.....................................70
12.2 Transfer of Shares prior to Release Date.........................70
12.3 Maintenance of records...........................................70
12.4 Information to Participants......................................70
13. ALTERATIONS.........................................................71
13.1 General Power to Amend Scheme....................................71
13.2 Amendment prior to Inland Revenue approval.......................71
13.3 Amendment subsequent to Inland Revenue approval..................71
13.4 Amendment which adversely affects Participants...................71
14. GENERAL.............................................................71
SCHEDULE TWO: NOTICE OF APPROPRIATION.........................................72
SCHEDULE THREE: DEED OF ADHERENCE.............................................74
SCHEDULE FOUR: INVITATION LETTER..............................................76
SCHEDULE FIVE: PARTICIPATION AGREEMENT........................................77
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THIS DEED of TRUST
is made the day of 1999
BETWEEN
1 The Associated Octel Company Limited whose registered office is situated
at Suite 2, 4th Floor, Berkeley Square House, Berkeley Square, London,
W1X 6DT ("the Company") and
2 Octel Profit Sharing Trust Co. Limited, whose registered office is
situated at Suite 2, 4th Floor, Berkeley Square House, Berkeley Square,
London, W1X 6DT ("the Trustee" which expression shall where the context
so permits include the trustee or trustees for the time being hereof).
WHEREAS
A The Company is incorporated in England and Wales;
B The Company wishes to establish a profit sharing share scheme to be
approved in accordance with the provisions of Schedule 9 of the Income
and Corporation Taxes Act 1988 (as amended) for the purposes of providing
funds to the Trustee to enable shares in the capital of the Company's
ultimate parent, Octel Corp. to be acquired by the Trustee and to be
appropriated to employees and directors of the Participating Companies
(as hereinafter defined) in accordance with the Rules of the Scheme;
C THE terms of the said Employee Share Trust (which are contained in this
Deed) have been approved by resolution of the Company dated 17 February
1999;
D THE Trustee has agreed to be the first trustee of the Scheme.
NOW THIS DEED WITNESSES as follows:
1. DEFINITIONS
1.1 General
In this Deed:
a references to any statute or statutory instrument or to any part
or parts thereof include any modification, amendment or
re-enactment thereof for the time being in force; and
b references to any deed, agreement, document or instrument
(including this Deed) shall be construed as a reference to such
deed, agreement, document or instrument as from time to time
amended, supplemented or varied; and
c where the context permits words of the masculine gender shall
include the feminine and vice versa and words in the singular
shall include the plural and vice versa.
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d unless the context otherwise requires words and expressions
defined in Schedule One shall have the same meaning in the other
parts of this Deed and references to "Clauses" shall mean clauses
of this Deed and references to "Rules" in this Deed and in
Schedule One shall mean the rules set out in Schedule One.
1.2 Clause Headings
The Clause headings in this Deed are included for reference purposes only
and do not affect its interpretation wherever they may appear.
2. TRUSTS OF THE SCHEME
2.1 Covenant to pay Amounts due in accordance with the Scheme
The Company and the Participating Companies hereby covenant with the
Trustee to pay to the Trustee in accordance with and subject to the
provisions of the Scheme the amounts due from it for the purposes of the
subscription for or purchase of Shares by the Trustee to be appropriated
under the Scheme to the Participants employed by it together with any
other amounts required to cover any costs, charges, and expenses incurred
in such subscription or purchase and any other expenses and charges
incurred by the Trustee in the establishment, operation and determination
of the Scheme. Each Participating Company shall be separately liable to
fund only the amount necessary to purchase Shares to be appropriated to
the Participants specifically employed by it.
2.2 Trustee's Covenant to Apply Moneys in Acquisition of Shares
Subject as hereinafter provided, the Trustee hereby covenants with the
Company to apply the moneys received pursuant to Clause 2.1 in the
subscription for or purchase of Shares and to hold the same, once
appropriated, and all other trust property deriving therefrom, UPON TRUST
for the Participants respectively entitled thereto, subject to the Rules
of the Scheme.
2.3 Appropriation in Accordance with Rules of the Scheme
As soon as reasonably practicable after the acquisition of Shares by it
pursuant to the Scheme the Trustee shall appropriate the Shares so
acquired to the Participants in accordance with the Rules of the Scheme
and shall as soon as reasonably practicable thereafter notify each
Participant in writing in the form (or substantially in the form) of
Schedule Two of the description and number of Shares so appropriated to
him, the date of the appropriation and the Initial Market Value of the
Shares.
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2.4 Holding of Shares pending Distribution
If, in the case of any acquisition of Shares under the Scheme, it is not
possible to appropriate all the Shares without fractional entitlements
arising in respect of individual Participants or, if for any other reason
the Trustee holds Shares for the purpose of the Scheme which are not to
be appropriated, the Trustee may hold so many of the Shares as the
Company shall direct for a period not exceeding 18 months from the
relevant date of acquisition and the Trustee may sell the Shares if they
cannot be appropriated within that period.
2.5 Payments of Money or Monies Worth
Subject to their obligations under paragraph 7 of Schedule 10 to the Act
and to any such direction as is mentioned in paragraph 4(2) of that
Schedule the Trustee:
a shall pay over to the Participant any money or money's worth
received by them in respect of or by reference to any of his
Shares other than money's worth consisting of new shares within
the meaning of paragraph 5 of Schedule 10 to the Act; and
b the Trustee shall deal only pursuant to a direction given by or on
behalf of the Participant or any person in whom the beneficial
interest in his Shares is for the time being vested with any right
conferred in respect of any of his Shares to be allotted shares,
securities or rights of any description.
2.6 Rights Issue in respect of Unappropriated Shares
If, prior to the appropriation of any Shares under the Scheme, the
Trustee becomes entitled in respect of those Shares to any rights to be
allotted or to subscribe for further securities (other than an issue of
bonus shares of the same class as Shares then held by the Trustee pending
any such appropriation, which bonus shares shall be retained by the
Trustee and shall form part of the Shares to be appropriated among the
Participants on the relevant Appropriation Day) the Trustee may exercise
those rights or sell those rights for the best consideration in money
reasonably obtainable at the time.
2.7 Use of Cash Balances
The Trustee shall hold:
a any unused cash balances arising under Clause 2.2;
b the net proceeds of any sale made pursuant to Clauses 2.4 and 2.5;
c any income therefrom;
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d any dividends received in respect of any unappropriated Shares
held under the Scheme; and
e any Capital Receipt of less than (pound)1 otherwise distributable
to a particular Participant
UPON TRUST to apply the same in or towards any reasonable expenses of
administering and determining the Scheme (including any provision for
taxation for which the Trustee is liable) and the Trustee shall notify
the Company on request of the amounts so held by it. The Trustee shall
not be under any duty to invest any moneys of which it stands possessed
under this Clause.
2.8 Accounting for Moneys on Termination of the Scheme
Upon the termination of the Scheme for whatever reason the Trustee shall
sell all unappropriated Shares and thereupon account (so far as
practicable) to the Company and to any Participating Companies for any
moneys held by it as far as is practicable in the same proportions as
they were provided or as may otherwise be appropriate.
3. DIVIDENDS AND OTHER DISTRIBUTIONS
As soon as practicable following their receipt of any dividends or other
distributions in respect of Scheme Shares, the Trustee shall pay and
account for such dividends or other distributions to the Participants
concerned, in accordance with their respective entitlements.
4. GROUP COMPANIES
4.1 Addition of New Participating Companies
The Scheme may, with the consent of the Directors and after notification
to the Inland Revenue, be extended to any company which is under the
Control of the Company not a party to this Deed by the adherence of such
company to the provisions of the Scheme by a deed supplemental hereto, in
the form of Schedule Three, amended as may be thought necessary by the
Company and the Trustee and thereupon the provisions of the Scheme and of
this Deed shall apply to such company as though it were a party to this
Deed.
4.2 Company ceasing to be a Participating Company
The Scheme shall cease to apply to any Participating Company other than
the Company at any time when:
a such company ceases to be under the Control of the Company; or
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b a notice is served by the Company upon the Trustee that the Scheme
shall cease to apply to such company provided that the conditions
specified in paragraph 2(3) of Schedule 9 to the Act continue to
be satisfied;
but any Shares previously appropriated to employees of any such
Participating Company shall be unaffected.
4.3 Provision of Information to Trustee
If, and so long as, the Scheme applies to any Participating Company, such
company shall provide the Trustee with all information required from it
for the purposes of the administration and determination of the Scheme
and shall do so in such form as the Trustee shall reasonably require and
the Trustee shall in good faith rely on such information without further
enquiry.
4.4 Company acts through Board of Directors
If, and so long as, the Scheme applies to any Participating Company the
powers and discretions exercisable by such company in relation to the
Scheme shall be exercisable by resolution of its board of directors or a
duly appointed committee thereof and a minute of any resolution thereof
signed by the secretary or a director of such company shall be sufficient
authority for the Trustee to act.
5. ACQUISITION OF SHARES
5.1 Methods by which Shares may be acquired
Shares to be used under the Scheme may be acquired by the Trustee by way
of:
a subscription; or
b purchase including from Participants; or
c a rights or capitalisation issue in respect of Shares which have
been acquired by the Trustee and have not been appropriated under
the Scheme.
5.2 Use of Sums not Applied in Acquisition of Shares
Any sums paid by a Participating Company to the Trustee pursuant to
Clause 2.1 shall if not applied for the purposes of the Scheme within
nine months from the date of such payment be used to cover the Trustee's
incidental costs and expenses or be repaid promptly to that company.
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6. ISSUE OF SHARES
6.1 Rights of Shares Subscribed by Trustee
All Shares subscribed for by the Trustee pursuant to the Scheme shall as
to voting, dividend, transfer and other rights (including those arising
on a liquidation) rank pari passu except that they will not rank for any
dividend or other rights declared by reference to a record date preceding
the date of such subscription.
6.2 Admission to the New York Stock Exchange
If, and so long as, the Shares which are to be issued are of the same
class as shares which are traded on The New York Stock Exchange, the
Company shall use its best endeavours to procure that as soon as
practicable after the allotment of any Shares to the Trustee pursuant to
the Scheme, application shall be made to The New York Stock Exchange for
permission to deal in those Shares unless such application has already
been made.
7. RETENTION OF SHARES
7.1 No Disposal before Release Date
The Trustee shall not dispose of any Scheme Shares held on behalf of a
Participant before the Release Date during the applicable Period of
Retention except in accordance with a direction of such Participant (or
his personal representatives) in the event of a Reconstruction or
Take-over affecting such shares.
7.2 Disposals after Period of Retention and before Release Date
The Trustee shall not dispose of any Scheme Shares held on behalf of a
Participant (other than in accordance with a direction given by a
Participant or his personal representatives in the event of a
Reconstruction or Take-over affecting his Scheme Shares) after the end of
the applicable Period of Retention and before the Release Date except:
a at the written direction of such Participant or any other person
in whom the beneficial interest is vested by law; and
b by a transaction which would not involve a breach of paragraphs
2(2)(c) and (d) of Schedule 9 to the Act.
7.3 Sale by Participant after Period of Retention
After the applicable Period of Retention and before the Release Date
nothing shall prevent a Participant from selling his beneficial interest
in his Scheme Shares to the Trustee for the same consideration as in
accordance with Clause 7.2b would be required to be obtained on a sale of
such Shares to a third party.
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8. VOTING RIGHTS
In respect of any Scheme Shares the Trustee shall upon any matter in
relation to which at a general meeting of the Relevant Company or at any
class meeting they are entitled to exercise any voting rights attaching
thereto vote in such way as the Trustee, in its discretion considers to
be in the interests of the Participants as a whole. The Trustee shall not
exercise any voting rights in respect of any unappropriated Shares
acquired by it pursuant to the Scheme.
9. NOTICES AND CIRCULARS
9.1 Notices to Participants
Notices or documents which the Trustee is required or may desire to give
to any Eligible Employee or Participant shall either be delivered to him
by hand or sent to him by post at his last known home or business address
according to information provided by him to the relevant Participating
Company. Notices sent by post shall be deemed to have been given on the
day following the date of posting.
9.2 Circulars to Shareholders
The Company shall make available to Participants copies of all circulars
and documents sent by it to the holders of its Shares and if and for so
long as the Company is not the Relevant Company shall use all reasonable
endeavours to procure that all circulars and documents sent by the
Relevant Company to its ordinary shareholders shall be made available to
Participants.
10. RIGHTS ISSUES
10.1 Action by Trustee
Whenever any rights to acquire shares or other securities or other rights
of any nature are granted by the Relevant Company in respect of Scheme
Shares the Trustee shall act in the best interests of the Participants in
deciding whether:
a (subject to the provision by him of funds) to take up the rights
on behalf of the Participants; or
b to sell the rights (in whole or in part); or
c to allow the rights to lapse; or
d to sell rights nil paid to the extent necessary to enable the
Trustee to subscribe in full for the balance of any unsold rights.
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10.2 Acquisition of New Shares
Any New Shares (within the meaning of paragraph 5 of Schedule 10 of the
Act) taken up by the Trustee on behalf of any Participant under this
Clause shall subject to Clause 14 form part of the Participant's Scheme
Shares and shall be deemed to have been acquired or appropriated at the
same time as the Scheme Shares to which they relate.
10.3 Trustee Requires Indemnity
Nothing in this Clause shall require the Trustee to act in any manner
whereby they would be involved in any liability unless indemnified to
their satisfaction by the Participant in question against such liability.
In the exercise of any discretion conferred upon it the Trustee shall not
be liable for any loss to any Participant arising by reason of any matter
or thing other than wilful fraud or wrongdoing on the part of the
relevant trustee sought to be made liable.
11. CAPITALISATION ISSUES
Where the Relevant Company allots any New Shares (within the meaning of
paragraph 5 of Schedule 10 of the Act) by way of capitalisation to the
Trustee in respect of any Scheme Shares held by it such New Shares shall
subject to and in accordance with Clause 14 form part of such Scheme
Shares and shall be deemed to have been acquired or appropriated at the
same time as the Scheme Shares in respect of which they are allotted.
12. SCRIP DIVIDENDS
12.1 Election by Trustee
Whenever the Relevant Company offers to the holders of any Scheme Shares
the right to elect to receive Shares wholly or partly in lieu of a cash
dividend the Trustee shall act in the best interests of the Participants
in electing whether to receive cash or Shares in respect of such
dividend.
12.2 Shares shall not be Scheme Shares
Any Shares taken up by the Trustee on behalf of any Participant under
this Clause shall not form part of the Scheme Shares to which they relate
but shall be registered in the name of the relevant Participant.
12.3 Cash Distribution
In so far as any dividend or other distribution consists of cash it shall
belong to the Participants concerned and be paid to them in accordance
with Clause 3.
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13. RECONSTRUCTIONS AND TAKE-OVERS
13.1 Participants shall be Notified
Participants shall be notified of any Reconstruction or Take-over and any
Participant may give notice in writing to the Trustees instructing them
in respect of any of his Scheme Shares (and where appropriate exercising
any right to elect to receive any particular form of consideration
available thereunder).
13.2 Consideration consisting of Cash
To the extent the consideration received by virtue of any Reconstruction
or Take-over consists of cash it shall be treated as the proceeds of a
disposal under Clause 7.2 and so far as it consists of New Shares (within
the meaning of paragraph 5 of Schedule 10 of the Act) it shall be held by
the Trustee as Scheme Shares subject to the terms of this Deed and the
Rules of the Scheme mutatis mutandis as if the same were the Scheme
Shares in respect of which they are issued or which they otherwise
represent.
13.3 Compulsory Acquisition or Transfer of Shares
In the event of any Scheme Shares being compulsorily acquired or Scheme
Shares are transferred to another company or cancelled for a
consideration consisting of cash and/or shares the Participants concerned
shall receive notification thereof from the Trustees as soon as
practicable after such acquisition transfer or cancellation. The Trustee
shall act in the best interests of the Participants in electing whether
to receive cash or Shares in respect of such consideration and the
provisions of this Clause and Clause 14 shall apply mutatis mutandis.
14. ENTITLEMENTS
14.1 Proportionate Allocation of Securities
Where in respect of Shares of the same class as the Scheme Shares an
offer or invitation is made conferring rights to acquire against payment
additional securities in the Relevant Company or where new securities by
way of capitalisation are to be allotted by such company the Trustee
shall allocate such rights or securities amongst the Participants
concerned on a proportionate basis and if such allocation shall give rise
to a fraction of a right or a security shall round such allocation down
to the next whole right or security and the Trustee shall use its best
endeavours to sell any rights or securities which are not allocated and
distribute the net proceeds of sale (after deducting therefrom any
expenses of sale and any taxation which may be payable by the Trustee in
respect thereof) among the Participants whose allocation was rounded down
such proceeds being treated as a Capital Receipt in accordance with
Section 186(3) of the Act provided that any sum of less than (pound)1
otherwise distributable to a particular Participant may be retained by
the Trustee.
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14.2 Allocation of Securities forming part of holding of Scheme Shares
In any circumstances in which the Trustee receives new securities which
are deemed to form part of a holding of Scheme Shares the Trustee shall
allocate the securities to the Participant by reference to the relevant
dates of appropriation or acquisition of the Scheme Shares to which they
relate and if any such allocation should give rise to a fraction of a
security the Trustee shall subject to the Act round such allocation up or
down to the next whole security.
15. INFORMATION
The Trustee shall maintain such records as may be necessary to comply with the
Act and shall at all times and from time to time give to each Participant such
information as shall be in its possession to enable him to determine and
quantify any liability he may have to income tax under Schedule E by reason of
any Relevant Event.
16. TRUSTEE'S POWERS OF DELEGATION
16.1 Delegation to Professional Person
In the exercise of its discretions and the performance of its duties
hereunder the Trustee may employ and pay a registrar, solicitor, broker,
actuary, accountant, banker or other adviser and may appoint any such
person as its agent to transact all or any business and may act on the
advice or opinion of any such solicitor, broker, actuary, accountant,
banker or other adviser and shall not be responsible for anything done or
omitted to be done or suffered in good faith in reliance on such advice
or opinion.
16.2 Delegation to Other Person or Company
Except as otherwise provided by Section 186 and Schedules 9 and 10 to the
Act the Trustee may delegate any of their powers and duties hereunder or
any business including the exercise of any discretion to any person or
company including any Participating Company.
16.3 Revocation of Delegation
The Trustee may at any time and shall if so directed by the Company
revoke any delegation or arrangement made under this Clause and require
any trust property held by another person to be returned to the Trustee.
16.4 Execution of Documents
The Trustee may execute or sign or appoint an attorney to excute or sign
and may authorise any of its directors, officers or employees on its
behalf to effect the execution or signature of any deeds, documents,
cheques or other instruments by the impression of any signature on behalf
of or as witness of any sealing by the Trustee in writing, printing,
lithography, photocopying or any other mode of representing or
reproducing words in a visible form. Any such signature or sealing shall
constitute due execution by the Trustee.
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16.5 Deposit of Trust Property
The Trustee may at any time cause any part of the trust property to be
deposited for safekeeping with any person on behalf of the Trustee and
may pay any expenses in connection therewith.
17. ADMINISTRATION
17.1 Trustee's Power to make Regulations
Subject to, and in accordance with, the provisions of this Deed,
including Schedule One, the Trustee may make such regulations as it
considers appropriate relating to the administration of the Scheme.
17.2 Decisions taken by Majority
The directors of the Trustee shall meet together as may be necessary for
the administration of the trusts hereof and all decisions taken by a
majority (or as a result of the casting vote of any chairman appointed by
the directors of the Trustee present at the meeting) of the directors of
the Trustee present at any meeting of the board of the Trustee of which
notice has been given to all of them present in the United Kingdom
(provided at least two directors shall be present) shall be as effective
for all purposes as if such decisions had been unanimous decisions of all
the directors. A written resolution signed by all the directors arrived
at without any meeting shall be effective for all purpose. Nothing herein
shall preclude a sole director from acting on its own.
17.3 Accounting for Tax
The Trustee shall arrange for the relevant Participating Companies to
account to the Inland Revenue or other authority concerned for any
amounts deducted from payments made pursuant to the Scheme in respect of
income tax or any other deductions required in accordance with paragraph
7 of Schedule 10 to the Act. Where there is no relevant Participating
Company in respect of a Participant the Trustee shall account to the
Inland Revenue or other authority concerned for any amounts of income tax
or any other deductions required to be made in accordance with paragraph
7 to Schedule 10 of the Act.
17.4 Minimum Number of Trustees
The number of trustees of the Scheme shall not be less than two persons
unless a company is appointed as sole trustee and if at any time the
number of trustees shall fall below such limits the surviving or
continuing trustees shall have power to act only for the purpose of doing
all things necessary to concur in or secure the appointment of a new
trustee or trustees.
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18. PROVISIONS RELATING TO THE TRUSTEE
18.1 Trustee's Indemnity
The Company shall pay to or reimburse the Trustee or its directors, as
appropriate, upon demand for all charges and expenses reasonably incurred
by it or them in the course of the administration and determination of
the trusts of this Deed and of the Scheme and shall keep the estates and
effects of the Trustee's directors fully indemnified and saved harmless
against all actions, claims, losses, demands, proceedings, charges,
expenses, costs, damages, taxes, duties and other liabilities arising out
of anything done or caused to be done by them or suffered or incurred by
them in the exercise or purported exercise of any of the powers and
discretions vested in them by this Deed and the Scheme or otherwise
howsoever arising out of or in connection with the preparation,
administration, operation, or termination of the Scheme but so that no
director shall be indemnified or exonerated in respect of any fraud or
wilful default on his part and in addition the Trustee shall have the
benefit of all indemnities conferred upon trustees generally by law and
by the Trustee Act 1925.
18.2 Trustee's Interests
A person shall not be disqualified from acting as director of the trustee
hereof or exercising any power vested in the Trustee by reason of the
fact that he is or has been a director or employee of any Participating
Company or is participating in or has participated in the Scheme or for
any remuneration or other benefit received thereby or in connection
therewith.
18.3 Banker may be Trustee
Any bank which is banker to any Participating Company may act as trustee
without being required to account for any profit resulting therefrom.
18.4 Charges of Professional Trustee
Any person acting as a director of the trustee in the course of any
profession or business carried on by him may charge and be paid such
reasonable remuneration charges or disbursements whether in connection
with the Scheme or otherwise as shall from time to time be agreed between
him and the Company.
18.5 Trustee not precluded from personal investment
No director or officer of a body corporate or a trust corporation acting
as a trustee shall on his own account be precluded from acquiring,
holding, or dealing with any debentures, debenture stock, shares or
securities whatsoever of the Company or any other company in the shares
of which the Company may be interested or from entering into any contract
or other transaction with the Company or any such other company or from
being interested in any such contract or transaction and nor shall he be
in any way liable to
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account to the Company, or any Participant in the Scheme for any profits
made fees, commissions, shares of brokerage, discounts allowed or
advantages obtained by him from or in connection with such acquisition,
holding, dealing, contract or transaction whether or not in connection
with his duties hereunder.
18.6 Information Supplied by Company
The Trustee shall be entitled in the absence of manifest error to rely
without further enquiry on information supplied to them by the Company
for the purposes of the Scheme and shall also be entitled to rely in the
absence of manifest error on any direction, notice or document purporting
to be given or executed by or with the authority of the Company or by any
Participant in the Scheme as having been so given or executed.
19. APPOINTMENT REMOVAL AND RETIREMENT OF TRUSTEES
19.1 Statutory Power Vested in Company
The statutory power of appointing new and additional trustees shall be
vested in the Company, which may at any time by writing under hand of a
person duly authorised by a resolution of the Directors appoint a new
trustee including a corporate trustee.
19.2 Power to Appoint Additional Trustees
In addition to the said statutory power the Company shall have power at
any time by deed to appoint any person to be an additional trustee hereof
notwithstanding that the effect of such appointment would be to increase
the number of trustees hereof beyond four.
19.3 Company Ceasing to Exist
All powers of appointment and removal shall be vested in the Trustee in
the event that the Company ceases to exist otherwise than in consequence
of a reconstruction or amalgamation.
19.4 Removal of Trustee
The Company may at any time by writing under hand of a person duly
authorised by a resolution of the directors remove a trustee from office
(but not so as to leave in office fewer than two trustees unless a
corporate trustee) without assigning any reason therefor and such removal
shall (in the absence of any other date specified in the notice) take
place forthwith.
19.5 Retirement of Trustee
A trustee may retire by giving to the Company written notice of his
desire to retire and such notice shall take effect at the expiry of three
months (or such other period as may be agreed with the Company) from the
date of such notice. The trustee shall not be obliged and shall not be
responsible for any costs occasioned by such retirement but shall execute
all such documents and do all such things as may be necessary to give
proper effect to such retirement.
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19.6 Transfer of Trust Property following Retirement
Forthwith upon his removal or retirement a trustee shall transfer all
trust property held by him and deliver all documents in his possession
relating to the Scheme to the remaining trustees (if any) or otherwise as
the Company may direct.
19.7 Sole Continuing Trustee
After such removal or retirement as is mentioned in Clauses 19.4 or 19.5
a sole trustee (whether or not a trust corporation) may continue to act
as a trustee in all respects but so that if after such removal or
retirement there shall be no continuing trustee the Company shall
forthwith appoint a new trustee in place of such removed or retired
trustee.
19.8 Trust Corporation
The provisions of Sections 37 and 39 of the Trustee Act 1925 shall apply
hereto as if all references therein to a trust corporation were
references to any company authorised to undertake trust business.
20. RESIDENCE OF THE TRUSTEES
If there is more than one trustee at least one of their number shall at
all times be resident in the United Kingdom for United Kingdom tax
purposes. If there is only one trustee it shall be a body corporate
(which in accordance with Clause 19.8 need not be a trust corporation) at
all times resident in the United Kingdom for United Kingdom tax purposes.
21. ALTERATIONS
The Company may at any time (with the concurrence of the Trustee) by deed
supplemental hereto alter any of the provisions of this Deed (including
the Schedules hereto) in accordance with Rule 13.
22. TERMINATION
No appropriation of shares under the Scheme may be made later than
seventy-six years after the date of this Deed and the perpetuity period
applicable to this Deed shall be eighty years.
23. GENERAL
23.1 Governing Law
This Deed shall be governed by and construed in accordance with the laws
of England and Wales.
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23.2 Schedule One
Schedule One shall have effect as part of this Deed.
IN WITNESS whereof this document has been executed and delivered as a deed the
day and year first above mentioned.
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SCHEDULE ONE: THE RULES
1. DEFINITIONS
In these Rules, the following words and expressions shall, where the context so
permits, have the meanings set forth below:
"Accounting Period" any period as the Directors may from time to
time determine, being the period for which the
audited accounts of the Company are made up;
the "Act" the Income and Corporation Taxes Act 1998;
"Agreement" a letter in the form (or substantially in the
form) of Schedule Five;
the "Appropriate Percentage" in relation to Scheme Shares shall be determined
as follows according to the time of the Relevant
Event:
(1) subject to (2) below, if the Relevant
Event occurs before the third
anniversary of the relevant
Appropriation Day, 100 %;
(2) if the Relevant Event occurs before
the third anniversary of the relevant
Appropriation Day and the Relevant
Participant either:
(a) ceases to be a director or
employee of any Participating
Company by reason of injury
disability or redundancy with
in the meaning of the
Employment Rights Act 1996; or
(b) reaches age 65, 50 %;
"Appropriation Day" a day determined by the Directors (and agreed in
advance with the Trustee) as the day on which
Shares are to be appropriated to Participants in
accordance with this Scheme;
"Capital Receipt" in relation to the Scheme Shares of a
Participant, any money or money's worth which
the Trustee or the Participant become entitled
to receive, save to the extent that it is
disregarded pursuant to the provisions of
Section 186(3) of the Act;
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the "Company" The Associated Octel Company Limited, registered in
England and Wales (registered number 344359);
"Continuous Employment" the meaning ascribed by Section 211 of the
Employment Rights Act 1996;
"Control" means the power of a person to secure
(a) by means of the holding of shares or the
possession of voting power in relation to
any body corporate; or
(b) by virtue of any powers conferred by the
articles of association or other document
regulating any body corporate,
that the affairs of a body corporate are conducted
in accordance with the wishes of that person;
"Dealing Day" a day on which The New York Stock Exchange is open
for the transaction of business;
the "Deed" the Trust Deed constituting, inter alia, this Scheme
as amended from time to time;
the "Directors" the board of directors of the Company, or a duly
authorised committee thereof;
"Eligible Employee" any person (other than one who has served notice
under Rule 2.3 that he does not wish to participate
in the proposed appropriation) who on the applicable
Appropriation Day:
(1) is a Full Time Director or employee of a
Participating Company and:
(a) is chargeable to tax in respect of
his office or employment under Case
I of Schedule E of the Act; and
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(b) on the immediately preceding
Qualifying Date had such period of
Continuous Employment with any one or
more Participating Companies (taken
consecutively) as the Directors may
determine provided, being a period not
exceeding five years in total ending on
the relevant Appropriation Date; or
(2) is a former employee who ceased employment
with a Participating Company in the preceding
eighteen months whom the Directors may in
their absolute discretion permit to
participate; or
(3) would be eligible to participate under (1)
above save that he is not chargeable to tax
under Case I of Schedule E of the Act but
whom the Directors may in their absolute
discretion permit to participate;
PROVIDED THAT:
(A) a person who at the relevant Qualifying Date
is absent due to pregnancy or confinement
(and who immediately prior to such absence
satisfied the criteria set out in paragraph
(1) above) shall be treated as an employee on
the relevant Qualifying Date provided that
the employment during such pregnancy or
confinement shall be taken to be part of the
required period of Continuous Employment with
any one or more Participating Companies; and
(B) a person who is ineligible to participate by
virtue of paragraphs 8 or 35 of Schedule 9 to
the Act shall not be treated as an Eligible
Employee;
"Full Time Director" a Director who is contracted to work at least 25 hours
per week (exclusive of meal breaks) (or such lower
number of hours per week as the Directors may determine
from time to time in their absolute discretion) for any
one or more of the Participating Companies;
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"Initial Market Value" (1) save as mentioned in (2) below, the value
of a Share immediately before the
relevant Appropriation Day determined in
accordance with Part VIII of the Taxation
of Chargeable Gains Act 1992 and agreed
in advance with the Shares Valuation
Division of the Inland Revenue; or
(2) in relation to appropriations of Shares
quoted on the New York Stock Exchange,
their value determined by reference to
the average cost to the Trustees
(exclusive of all incidental expenses) of
all Shares acquired during the following
periods:
(a) in respect of subscribed Shares (if any)
in the period of 30 days immediately
preceding the relevant Appropriation Day
provided that such shares shall only be
subscribed at a price which is equivalent
to the middle market quotation for such
Shares as derived from the Wall Street
Journal for the Dealing Day preceding
subscription; and
(b) in respect of purchased Shares (if any)
the period of 60 days immediately
preceding the relevant Appropriation Day.
"Invitation" a letter of offer in the form (or substantially the
form) of Schedule Four;
"Locked-In Value" in relation to any Scheme Shares, shall be
construed in accordance with Section 186(5) of the
Act, being at the date of the Deed:
(1) the Initial Market Value of the Scheme
Shares; or
(2) in the event that the Participant has by
virtue of Section 186(3) of the Act
become chargeable to income tax on a
percentage of the amount or value of any
Capital Receipt in respect of the Scheme
Shares, the amount by which the Initial
Market Value of the Scheme Shares exceeds
the amount or value of such percentage of
such Capital Receipt or, if there has
been more than one Capital Receipt, the
aggregate of them;
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"Participant" an Eligible Employee to whom Scheme Shares are
appropriated in accordance with this Scheme (or,
where the context admits, his personal
representatives);
"Participating Company" the Company and any other company for the time
being designated as a Participating Company being a
company which is under the Control of the Company;
"Period of Retention" in relation to Scheme Shares, the period beginning
on the date on which they are appropriated to a
Participant and ending on whichever is the earliest
of:-
(1) the second anniversary of such date;
(2) the date on which such Participant ceases
to be a director or employee of any
Participating Company by reason of injury
disability or redundancy within the
meaning of the Employment Rights Act
1996;
(3) the date on which such Participant
reaches age 65; and
(4) the date of such Participant's death;
"Qualifying Corporate Bond" has the meaning attributed by Section 117 of the
Taxation of Chargeable Gains Act 1992;
"Qualifying Date" a date as the Directors may from time to time
determine (or, in the absence of any such
determination, the last day of the Company's
accounting period) in the period of one year
immediately preceding the relevant Appropriation
Day;
"Qualifying Remuneration" in relation to any Participant shall mean his total
earnings from the Company and any Participating
Company for the Year of Assessment immediately
preceding the Appropriation Day;
"Reconstruction and Take- a transaction affecting any Scheme Shares which:
over"
(1) is an offer for those Scheme Shares which
if accepted, would result in a new
holding of shares being equated with such
Scheme Shares for the purposes of capital
gains tax; or
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(2) is entered into pursuant to a scheme of
arrangement or a compromise applicable to
or affecting:-
(a) all the issued ordinary share
capital of the Relevant Company or,
as the case may be, all of it that
is of the class in question; or
(b) all the shares, or shares of the
class in question, which are held by
a class of shareholders identified
otherwise than by reference to their
employment or their participation in
an approved profit sharing scheme
approved by the Inland Revenue under
the Act; or
(3) is an offer of cash (with or without other
assets) where the offer forms part of a
general offer which is made to the holders
of shares of the same class in the
Relevant Company and which is made in the
first instance on a condition such that if
it is satisfied the offer or will have
control (within the meaning of Section 416
of the Act); or
(4) is an offer of a Qualifying Corporate
Bond, whether alone or with cash or other
assets or both where the offer forms part
of a general offer which is made as
mentioned in paragraph (3) above;
"Redundancy" the meaning ascribed by the Employment Rights Act
1996;
"the Release Date" the meaning ascribed by Section 187(2) of the Act;
"the Relevant Amount" in relation to a Participant, an amount equal to 10%
of his salary (or, if greater, (pound)3,000) subject
to a maximum of (pound)8,000; "salary" for this
purpose shall have the meaning ascribed by Section
187(5) of the Act for the current or preceding Year
of Assessment, whichever is the greater;
"the Relevant Company" Octel Corp. or any other company whose shares are as
a result of a Reconstruction or Take Over, Scheme
Shares;
"Relevant Event" in relation to any Scheme Shares, an event which
gives rise to a charge to income tax under Schedule
E pursuant to the provisions of the Act;
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"Rules" the Rules of the Scheme and "Rule" shall be
construed accordingly;
"Scheme" Octel Profit Sharing Share Scheme in its present
form, or as from time to time altered in
accordance with the Rules;
"Scheme Shares" Shares held by the Trustee upon the terms of this
Scheme on behalf of the Participants;
"Share" a share in Octel Corp. satisfying paragraphs 10,
11, 12 and 14 of Schedule 9 to the Act;
"Trustee" the Trustee referred to in the Deed, or such other
person or persons who is or are the trustee or
trustees from time to time of the Scheme;
"Year of Assessment" a year beginning on any 6 April and ending on the
following 5 April.
References to any statutory provision are to that provision as amended or
re-enacted from time to time and, unless the context otherwise requires, words
in the singular include the plural (and vice versa) and words importing the
masculine shall include the feminine (and vice versa).
2. INVITATIONS TO PARTICIPATE
2.1 Issue of Invitations
When the Directors have determined that this Scheme shall operate, the
Company shall, following the applicable Qualifying Date, issue an
invitation to each Eligible Employee inviting him to consent (if he has not
already done so) to the appropriation of Shares on the proposed
Appropriation Day (or if so provided in the Invitation, on all future
Appropriation Days until further notice) by signing and returning the
accompanying Agreement duly completed and signed by such date at least
fourteen days after the date of the Invitation as shall be specified in the
Invitation (but in any event prior to the relevant Appropriation Day).
2.2 Terms of Agreement
Save as provided in Clause 6 of the Deed, an Agreement shall bind the
relevant Eligible Employee in contract with the Company:
a to permit the Scheme Shares to be appropriated to him to remain in the
hands of the Trustee throughout the applicable Period of Retention;
and
65
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RULES OF OCTEL PROFIT SHARING SHARE SCHEME
- --------------------------------------------------------------------------------
b not to assign, charge or otherwise dispose of his beneficial interest
in those Scheme Shares during the applicable Period of Retention; and
c if he directs the Trustee to transfer the legal title of those Scheme
Shares to him at any time before the applicable Release Date, to pay
to the Trustee before such transfer takes place a sum equal to income
tax at the basic rate on the Appropriate Percentage of the
Locked-In-Value of such Scheme Shares at the time of such direction;
and
d not prior to the relevant Release Date to direct the Trustee to
dispose of those Scheme Shares otherwise than as aforesaid or by sale
for the best consideration in money that can reasonably be obtained
therefor at the time of such sale.
2.3 Employee Electing not to Participate
Notwithstanding anything to the contrary, an Eligible Employee may by
written notice given to the Company before an Appropriation Day direct that
Shares shall not be appropriated to him on that Appropriation Day or, if
applicable, on each subsequent Appropriation Day until further notice.
3. PURCHASE OF SHARES FOR APPROPRIATION
3.1 Arrangements for Purchasing Shares
The Trustee may upon the direction of the Directors, purchase Shares from
time to time until the Dealing Day preceding the relevant Appropriation
Day. Such Shares may be purchased on The New York Stock Exchange or
privately (provided that any such private purchase made at the time when
the Shares are listed is made at a price which is equivalent to the middle
market quotation for such Shares as reported in The Wall Street Journal for
the Dealing Day preceding the day in question) and provided that an
Appropriation of Shares shall be at not less than the Initial Market Value.
3.2 When Shares may not be Purchased
The Trustee shall not purchase any Share unless it is reasonably certain at
that time that any appropriation of that Share on the relevant
Appropriation Day would not breach any relevant term of this Scheme or any
similar scheme established by the Company or any of its Subsidiaries.
4. SUBSCRIPTION OF SHARES FOR APPROPRIATION
4.1 Arrangements for Subscription for New Shares
The Trustee, at the direction of the Directors, may at any time within the
period of 30 days prior to the Dealing Day immediately preceding the
relevant Appropriation Day, subscribe for Shares for appropriation under
this Scheme on that Appropriation Day, and the price per Share at which the
Trustee subscribes for Shares under this Scheme shall be the greater of:-
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RULES OF OCTEL PROFIT SHARING SHARE SCHEME
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a the nominal value of a Share on the date of subscription; and
b the market value of a Share which:
i so long as the Shares are listed on the New York Stock Exchange,
shall be the middle market quotation of a Share as derived from
the New York Stock Exchange (as derived from the Wall Street
Journal) on the day immediately preceding the Dealing Day before
the date of subscription; or
ii so long as the Shares are not listed on the New York Stock
Exchange shall be their value determined in accordance with
Section 272 of the Taxation of Chargeable Gains Act 1992 and as
agreed in advance with the Shares Valuation Division of the
Inland Revenue for the purposes of the Scheme.
4.2 Timing of Contributions to Trustees
Contributions to be made by the Company and each Participating Company to
the Trustee to support any purchase for or subscription of Shares to be
made by the Trustee for appropriation on any Appropriation Day shall be
paid not later than the Dealing Day immediately prior to the relevant
Appropriation Day.
5. APPROPRIATION OF SHARES
5.1 Number of Appropriations
Not more than two appropriations of Shares shall be made under the Scheme
in each Year of Assessment out of profits of the Participating Companies.
5.2 Method of Appropriation
Shares shall be appropriated amongst Eligible Employees on an Appropriation
Day in accordance with such one or more of the following methods as the
Directors shall determine:-
a Eligible Employees shall receive Shares having an Initial Market Value
equal to such percentage of their Qualifying Remuneration as the
Directors shall determine; or
b Eligible Employees shall receive a number of Shares per year of
Continuous Employment with one or more Participating Companies and/or
Subsidiaries; or
c Eligible Employees shall receive a fixed number of Shares or a number
of Shares with a Market Value equal to a fixed sum; or
d such other formula to be determined by the Directors and contained in
a supplementary Trust Deed to be executed by the Trustees and the
Company, and approved by the Inland Revenue.
67
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RULES OF OCTEL PROFIT SHARING SHARE SCHEME
- --------------------------------------------------------------------------------
For the avoidance of doubt, the methods mentioned in this Rule may be added
but not multiplied.
5.3 Proportionate allocation of Shares which do not rank pari passu
Where the Trustee on an Appropriation Day appropriates Shares a proportion
of which rank for any dividend or other rights by reference to a record
date preceding the relevant Appropriation Day and a proportion of which do
not, then the Shares to be appropriated to each Eligible Employee shall as
far as practicable be in the same proportions thereto.
5.4 Limitation to Relevant Amount
The aggregate of the Initial Market Value of all Shares which may be
appropriated to any Participant in any Year of Assessment shall not exceed
the Relevant Amount.
5.5 Evidence of share ownership
Evidence of share ownership shall be provided by the Company in respect of
Scheme Shares and shall be delivered to or to the order of the Trustee.
6. ISSUE OF SHARES
Shares to rank pari passu
All Shares issued under the Scheme shall as to voting, dividend, transfer
and other rights (including those arising on a liquidation) rank pari passu
in all respects with the Shares then in issue.
7. DISPOSALS AND PAYMENT
7.1 Prohibition on Disposal by Trustee
The Trustee shall not dispose of any Scheme Shares which have been
appropriated to a Participant (whether to the Participant concerned or
otherwise) except in accordance with Clause 5 of the Deed.
7.2 Accounting for Cash Receipts
Upon receipt of a sum of money being (or being part of) the proceeds of any
disposal or Capital Receipt in respect of any Scheme Shares, the Trustee
shall (subject to compliance with the provisions of the Act) account to the
Participant for any balance remaining in their hands and relating to such
Scheme Shares, provided that any sum of less than (pound)1 distributable to
a particular Participant may be retained by the Trustee.
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RULES OF OCTEL PROFIT SHARING SHARE SCHEME
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7.3 Accounting by Participating Company
Any Participating Company to which the Trustee pays any part of any such
sum as is referred to in Rule 7.2 shall (subject to compliance with the
Act) forthwith account to the Participant for the balance remaining in its
hands.
8. TRANSFER OF LEGAL TITLE
8.1 Transfer free of Income Tax
Forthwith upon the earlier of:
a the Release Date of any Scheme Shares; and
b any time at which by reason of the provisions of the Act any such
Scheme Shares shall cease to give rise upon their disposal to a charge
to income tax on the relevant Participant,
the Trustee shall transfer the applicable Scheme Shares to the Participant
concerned.
8.2 Transfer after Period of Retention
At any time after the end of the applicable Period of Retention, a
Participant may, by notice in writing require the Trustee to transfer the
relevant Scheme Shares into his name.
9. STAMP DUTY
Any stamp duty, stamp duty reserve tax or other expenses involved in any
transfer of Shares by the Trustee shall be payable:-
a in the case of a transfer into the name of the Participant concerned,
by the Trustee (and reimbursed by the Company); and
b in any other case, by the Participant concerned or the purchaser from
the Participant concerned.
10. DISPUTES
The decision of the Directors in any dispute or question affecting any
Eligible Employee or Participant under this Scheme shall be final and
conclusive.
69
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RULES OF OCTEL PROFIT SHARING SHARE SCHEME
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11. RIGHTS ON TERMINATION OF EMPLOYMENT
In no circumstances shall any person who has ceased to be an employee of
any Participating Company by reason of dismissal or otherwise howsoever or
who is under notice of termination of his employment be entitled to claim
as against such Participating Company or the Trustee any compensation for
or in respect of any consequential loss he may suffer by reason of the
operation of the terms of the Scheme or of the provisions of the Act.
12. DUTY TO ACCOUNT FOR PAYE ETC
12.1 Deduction from Cash Payments
Where the Trustee receives a sum of money which constitutes (or forms part
of):
a the proceeds of a disposal of Shares falling within Clause 6 which
constitutes a Relevant Event, or
b a Capital Receipt,
then, if required by and in accordance with the provisions of paragraph 7
of Schedule 10 of the Act it shall pay to the Company or relevant
Participating Company out of that sum of money an amount equal to that on
which income tax is payable and the Company or relevant Participating
Company shall then pay over that amount to the Participant in question but
in so doing shall make a PAYE deduction, unless such Participant shall have
ceased to be employed by the Company or Participating Company or the Board
of Inland Revenue otherwise directs when the Trustee shall pay over the
amount to the Participant but in so doing shall deduct United Kingdom
income tax at the basic rate for the time being in force on an amount equal
to that on which income tax is payable.
12.2 Transfer of Shares prior to Release Date
Where the Trustee receives from a Participant who has directed it to
transfer the ownership of his Shares to him at any time before the Release
Date, the sum calculated in accordance with Rule 2.2c, that sum shall be
treated as a PAYE deduction by the Trustee.
12.3 Maintenance of records
The Trustee shall maintain such records as may be necessary to enable then
to carry out their obligations under paragraph 7 of Schedule 10 of the Act,
including records of all payments to the Company and sums deducted by the
Trustee falling within Rule 12.1 and all sums received from Participants
falling within Rule 12.2.
12.4 Information to Participants
The Trustee shall inform each Participant in writing of any facts relevant
to determining the liability (if any) of that Participant to income tax
under Schedule E by reason of an occurrence of an event under the Scheme in
relation to his Scheme Shares.
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RULES OF OCTEL PROFIT SHARING SHARE SCHEME
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13. ALTERATIONS
13.1 General Power to Amend Scheme
Subject to the concurrence of the Trustee in a deed supplemental hereto,
the Rules of the Scheme may be altered in accordance with the following
provisions of this Rule. Any such alterations shall be binding on all
Participating Companies.
13.2 Amendment prior to Inland Revenue approval
The Directors may, prior to the approval of the Scheme under the Act by the
Inland Revenue, alter the Rules of the Scheme as may be necessary in order
to obtain such approval.
13.3 Amendment subsequent to Inland Revenue approval
After the date on which the Scheme is approved by the Inland Revenue under
the Act, the Directors may in their discretion alter the Rules provided
that no such alteration shall be effective until approved by the Inland
Revenue.
13.4 Amendment which adversely affects Participants
No alteration which purports to enlarge the obligations or restrict the
rights of any Participant in respect of Scheme Shares already appropriated
to him shall be effective.
14. GENERAL
The Company in general meeting or the Directors may at any time resolve to
terminate this Scheme, in which event no further Scheme Shares shall be
appropriated but the provisions of this Scheme shall continue in full force and
effect in relation to Scheme Shares already appropriated
71
<PAGE>
OCTEL PROFIT SHARING SHARE SCHEME: NOTICE OF APPROPRIATION
- --------------------------------------------------------------------------------
SCHEDULE TWO: NOTICE OF APPROPRIATION
To: (Name) Date:
(Address)
From: The Trustee of Octel Profit Sharing Share Scheme
This is to certify that the Trustee has now made an appropriation to [Name of
Participant] ("the Participant") of [ ] Ordinary Shares of [$ ] each in Octel
Corp. under the Scheme, and their initial market value for income tax purposes
is set out below[based on the current share price of $ [ ] converted at an
exchange rate of $ : (pound)1]:-
Date of Initial Number of Shares Value per share Market Value
Appropriation (pound) (pound)
The Ordinary Shares are held for the Participant by the Trustee of Octel Profit
Sharing Scheme and are subject to a valid contract under paragraph 2 (2) of
Schedule 9 of the Income and Corporation Taxes Act 1988.
Yours faithfully
for Octel Profit Sharing Trust Co. Limited
Notes:
1. PAYMENTS OF DIVIDENDS
Any dividends will be paid by the BACS system directly to your nominated bank
account. It is very important therefore that you notify the Trustee immediately
if you change your bank details (see below).
2. INCOME TAX
Income tax is not payable on the value of your shares if they are held on your
behalf by the Trustee until the `Release Date' (currently three years from the
date of appropriation). The amount of any dividend received and its tax credit
should be entered on your Income Tax Return for the relevant year.
72
<PAGE>
OCTEL PROFIT SHARING SHARE SCHEME: NOTICE OF APPROPRIATION
- --------------------------------------------------------------------------------
Write to the Trustee if:
(1) you change your name: (give your old names and new names in full and send a
copy of any documentation, e.g. marriage certificate);
(2) you change your address: (give your old and new address and state your full
names).
Address all such correspondence to the Trustee at:-
Trustee of Octel Profit Sharing Share Scheme
Octel Profit Sharing Trust Co. Limited
c/o The Associated Octel Company Ltd
PO BOX 17
Oil Sites Road
Ellesmere Port
South Wirral
L65 4 HF
ALWAYS WRITE NAMES AND ADDRESSES IN BLOCK CAPITALS
73
<PAGE>
OCTEL PROFIT SHARING SHARE SCHEME: DEED OF ADHERENCE
- --------------------------------------------------------------------------------
SCHEDULE THREE: DEED OF ADHERENCE
THIS DEED is made the [ ] day of [ ] 1999
BETWEEN
(1) The Associated Octel Company Limited whose registered office is at Suite 2,
4th Floor, Berkeley Square House, Berkeley Square, London, W1X 6DT ("the
Company");
(2) Octel Profit Sharing Trust Co. Limited whose registered office is at Suite
2, 4th Floor, Berkeley Square House, Berkeley Square, London, W1X 6DT ("the
Trustee"); and
(3) [ ] whose registered office is at [ ] ("the New Participating
Company").
WHEREAS
(A) This Deed is supplemental to a Deed dated [ ] and made between the Company
and the Trustee (hereinafter called the "Principal Deed") whereby the
Company established Octel Profit Sharing Share Scheme (hereinafter called
"the Scheme").
(B) The New Participating Company is controlled by the Company within the
meaning of Section 840 of the Income and Corporation Taxes Act 1988.
(C) In pursuance of the power contained in Clause 4 of the Principal Deed, the
Company has agreed that subject to its entering into this Deed of
Adherence, the New Participating Company may become a Participating Company
for the purposes of the Scheme.
NOW THIS DEED WITNESSES as follows:-
1. The Company hereby agrees that the New Participating Company shall be a
Participating Company for the purposes of the Scheme.
2. The New Participating Company hereby covenants with the Company and with
the Trustee that it will observe and perform all covenants, conditions and
provisions contained in the Principal Deed and all the provisions of the
Scheme applicable to Participating Companies.
IN WITNESS whereof the parties hereto have caused this Deed to be executed the
day and year first before written
74
<PAGE>
OCTEL PROFIT SHARING SHARE SCHEME: DEED OF ADHERENCE
- --------------------------------------------------------------------------------
THE COMMON SEAL of
The Associated Octel Company
Limited hereto affixed in
the presence of:
Director
Secretary
THE COMMON SEAL of )
Octel Profit Sharing Trust Co. Limited )
was hereto affixed in )
the presence of: )
Authorised signatory
Authorised signatory
THE COMMON SEAL of
[ ]
was hereto affixed in
the presence of:
Director
Secretary
75
<PAGE>
OCTEL PROFIT SHARING SHARE SCHEME:
- --------------------------------------------------------------------------------
SCHEDULE FOUR: INVITATION LETTER
Dear [ ]
Octel Profit Sharing Share Scheme ("the Scheme")
The Directors of the Company invite you to participate in the Scheme, and I am
pleased to announce that you are eligible to have [ ] Ordinary Shares in Octel
Corp. with a value of [(pound) ] appropriated to you.
In order to participate in this appropriation you must complete the top copy of
the Contract of Participation which is enclosed and return it to [ ] not later
than [ ]. THE SECOND COPY OF THE CONTRACT OF PARTICIPATION SHOULD BE RETAINED -
PLEASE KEEP IT IN A SAFE PLACE
Yours faithfully
76
<PAGE>
OCTEL PROFIT SHARING SHARE SCHEME:
- --------------------------------------------------------------------------------
SCHEDULE FIVE: PARTICIPATION AGREEMENT
Octel Profit Sharing Share Scheme ("the Scheme")
To: [ ]
Section I
- ---------
I have received the invitation to participate in Octel Profit Sharing Share
Scheme dated [ ] notifying me of my entitlement to receive ordinary shares of [$
] each in Octel Corp. and I hereby instruct you that I wish to take up my full
entitlement to Shares.
You will receive your full entitlement to Shares provided you have completed
Section II below.
Section II
- ----------
You must complete this Section if you intend to take any Shares;
I wish to be appropriated Shares under the Scheme and in consideration of such
appropriation I agree with the Company as follows:-
(1) I will be bound by the Rules of the Scheme;
(2) I will permit the Shares appropriated to me under the Scheme to remain
in the hands of the Trustee of the Scheme throughout the period up to
the Release Date (as defined in the Rules of the Scheme currently
three years after the Shares are appropriated to me);
(3) I will not assign, charge or otherwise dispose of my beneficial
interest in the Shares period up to the Release Date;
(4) If I direct the Trustee of the Scheme to transfer the ownership of my
Shares to me at any time before the Release Date (as defined in the
Rules of the Scheme - currently three years after the Shares are
appropriated to me), I will pay to the Trustee of the Scheme before
the transfer takes place such sum on account of income tax as they are
required to collect under the Income and Corporation Taxes Act 1988;
(5) I will not direct the Trustee of the Scheme to dispose of my Shares in
any other way at any time after the Retention Period and before the
Release Date, except by sale for the best consideration in money that
can reasonably be obtained at the time of the sale.
77
<PAGE>
OCTEL PROFIT SHARING SHARE SCHEME:
- --------------------------------------------------------------------------------
(6) I will permit the Trustee to make any payments of dividends directly
to me through the Bank Automated Clearing System (BACS) and understand
that this will require details of my nominated bank account to be
disclosed to the Trustee for the purposes of making this payment to
me.
Provided that none of the obligations contained in paragraphs (2) and (3) above
shall prevent me from:-
a giving directions to the Trustee of the Scheme; or
b agreeing to sell to the Trustee of the Scheme my beneficial interest in my
Shares in accordance with the provisions of paragraph 1 of Schedule 10 of
the Income and Corporation Taxes Act 1988 (which only applies in the event
of company reconstructions, schemes of arrangement, take-overs and similar
events).
Signed ............................. Dated ..................
Signed .....................................Dated ...............
78
<PAGE>
OCTEL PROFIT SHARING SHARE SCHEME:
- --------------------------------------------------------------------------------
EXECUTED as a DEED by )
The Associated Octel Company Limited )
Director
Director/Secretary
EXECUTED as a DEED by )
Octel Profit Sharing Trust Co. Limited )
Director
Director/Secretary
79
<PAGE>
EXHIBIT 12.1 - STATEMENT REGARDING COMPUTATION OF FINANCIAL RATIOS
(Dollars in millions)
<TABLE>
<CAPTION>
1998 1997 1996 1995
<S> <C> <C> <C> <C>
1. NET INCOME AS A PERCENT OF
SALES
A NET INCOME $ 70.4 $117.7 $128.3 $145.1
B NET SALES $465.0 $539.1 $597.4 $628.3
A% OF B 15.1% 21.8% 21.5% 23.1%
2. EFFECTIVE INCOME TAX RATE
C INCOME TAXES $ 41.5 $ 56.7 $ 63.8 $ 71.7
D INCOME BEFORE
INCOME TAXES $111.9 $174.4 $192.1 $216.8
C% OF D 37.1% 32.5% 33.2% 33.1%
3. CURRENT RATIO
E CURRENT ASSETS $240.9 $282.7 $339.6 $314.9
F CURRENT LIABILITIES $205.2 $102.8 $123.5 $138.8
E : F 1.2 2.7 2.7 2.3
</TABLE>
<PAGE>
EXHIBIT 13.2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Octel Corp.
We have audited the accompanying combined balance sheet of the businesses that
comprise Octel Corp. as of December 31, 1997, and the related combined
statements of income, cash flows and stockholders' equity for each of the two
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the businesses that
comprise Octel Corp. at December 31, 1997, and the combined results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
April 4, 1998
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
1. Octel Corp., a Delaware corporation
2. Octel L.L.C., a Delaware corporation
3. Octel America Inc., a Delaware corporation
4. Octel International Ltd., a United Kingdom corporation
5. Octel Developments PLC, a United Kingdom corporation
6. Octel Trading Ltd., a United Kingdom corporation
7. Octel Resources Ltd., a United Kingdom corporation
8. Octel Associates, a United Kingdom corporation
9. The Associated Octel Co. Ltd., a United Kingdom corporation
10. Associated Octel Co. (Plant) Ltd., a United Kingdom corporation
11. AKC Trading Ltd., a United Kingdom corporation
12. AKC GmbH, a German corporation
13. Octel France SAS, a French corporation
14. Societa Italiana Additivi per Carburanti srl, an Italian corporation
15. Octel Deutschland GmbH, a German corporation.
<PAGE>
[PHOTO OF DENNIS J. KERRISON APPEARS HERE]
Dennis J. Kerrison
President and Chief Executive Officer
Octel Corp.
DEAR SHAREHOLDERS: There are three realities that define Octel. One, our
main business is declining, and it's not coming back. Two, that business
remains profitable. Three, those profits will fund our strategies for
growth. Our mission is very clear.......
A CLEAR PATH
OCTEL CORP. ANNUAL REPORT 1998
<PAGE>
1998 HIGHLIGHTS
SPIN-OFF FROM GREAT LAKES CHEMICAL CORPORATION.
ITALIAN PLANT SALE. IMPROVED SAFETY RECORD,
50% IMPROVEMENT OVER 3 YEARS.
PURCHASED FUEL ADDITIVES BUSINESS FROM VEBA OEL.
PLUTO (ESTABLISHED AS OCTEL DEUTSCHLAND GMBH.
EPS MET MARKET EXPECTATIONS.
ESTABLISHED A MARKETING ALLIANCE
WITH ETHYL FOR THE SALE, MARKETING AND DISTRIBUTION OF TEL.
GENERATED $238M CASH FROM OPERATING ACTIVITIES,
50% OF SENIOR DEBT PAID IN FIRST 8 MONTHS.
REPURCHASED $14.0M IN SHARES (5.6%).
TABLE OF CONTENTS
Where We Stand 2
Our Opportunity for Growth 5
Plan in Motion 9
Chairman's Message 12
Financials 13
[BACKGROUND ARTWORK APPEARS HERE]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE FIGURES) 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF EARNINGS:
NET SALES $ 465.0 $ 539.1 $ 597.4 $ 628.3
OPERATING INCOME 134.9 194.7 226.1 254.6
INCOME BEFORE INCOME TAXES AND MINORITY 111.9 198.7 221.7 249.1
MINORITY INTEREST -- 24.3 29.6 32.3
INCOME TAXES 41.5 56.7 63.8 71.7
NET INCOME 70.4 117.7 128.3 145.1
CASH GENERATED BY OPERATING ACTIVITIES 238.3 167.5 127.8 175.8
FINANCIAL POSITION AT YEAR END:
WORKING CAPITAL 106.7 179.9 216.1 175.8
TOTAL ASSETS 806.7 832.9 841.0 798.4
LONG TERM DEBT (INCLUDING CURRENT PORTION) 300.8 -- -- --
GLCC INVESTMENT -- 652.8 584.6 530.8
STOCKHOLDERS' EQUITY 301.1 -- -- --
FINANCIAL RATIOS:
NET INCOME AS A PERCENT TO SALES 15.1 21.8 21.5 23.1
EFFECTIVE INCOME TAX RATE 37.1 32.5 33.2 33.1
CURRENT RATIO 1.2 2.7 2.7 2.3
SHARE DATA:
EARNINGS -- BASIC 4.85 7.84 8.08 8.88
-- FULLY DILUTED 4.85 7.84 8.08 8.88
SHARES OUTSTANDING (BASIC, THOUSANDS)
-- AT YEAR END 13,934 15,000 15,900 16,300
-- AVERAGE DURING YEAR 14,514 15,000 15,900 16,300
STOCK PRICE
-- HIGH 22.7 -- -- --
-- LOW 11.6 -- -- --
-- AT YEAR END 13.9 -- -- --
</TABLE>
. 1995 BALANCE SHEET DATA IS UNAUDITED.
. ACCOUNTS DETAILS PRIOR TO THE SPIN-OFF (MAY 22, 1998) ARE DERIVED FROM GLCC
HISTORIC DATA.
<PAGE>
OCTEL IS A GLOBAL CHEMICAL COMPANY SPECIALIZING IN HIGH PERFORMANCE FUEL
ADDITIVES -- PRIMARILY TETRAETHYL LEAD (TEL) ANTI-KNOCK COMPOUND.
We manufacture approximately 80 percent of the global demand for TEL and,
through the recently formed marketing alliance with Ethyl Corporation, market
directly to approximately 75 percent of global customers. The market is
declining roughly 15 percent per year due to the incompatibility of leaded fuel
with catalytic converters and certain health and environmental concerns. We have
pledged to manage this decline safely under our Product Stewardship Program. By
vigorous strategic management of our cost base, we will work to maintain high
margins to pay off debt and generate sufficient cash to grow our two strategic
business units: Petroleum Specialties and Performance Chemicals. The result, we
believe, will be the creation of value for our shareholders.
<PAGE>
... We will manage the declining lead business safely and effectively and
maximize cash flow through the decline. We will differentiate ourselves from our
competition and manage costs tightly to drive productivity improvements
throughout the organization. Also, we will look for opportunities for further
industry consolidation. We will accelerate our debt repayment, invest in our
specialties businesses, and return value to our shareholders. Our challenges, of
course, are also very clear. We must reinvent the company. We will create the
infrastructure of people, operations and technology to become a new company on a
new track towards profitable growth.
Our overriding mission is to execute these strategies in a way that creates
value for the shareholders who invest in our business. We can't do that by
tinkering at the margins of change. It takes fundamental redirection. And that,
in turn, takes tough decisions. We faced up to reality early. When you're
looking at a business that is declining by 15 percent a year, you can't waste
energy trying to change the rules. You create new ones. You adapt.
[SOUND BITE 1 - SEE PAGE 53]
<PAGE>
[PICTURE OF PLANE APPEARS HERE]
[SOUND BITE 2 - SEE PAGE 53]
WHERE WE STAND
The first step in rewriting the rules for the new company was the spin-off from
Great Lakes Chemical Corporation. Being on our own allows us to deal positively
with our issues, set our own strategies, focus on our strengths and invest in
our technologies. We can now create our own future.
THREE KEY UNITS As a number of businesses historically managed by Octel were
retained by Great Lakes, we organized the company into three Strategic Business
Units (SBUs) -- Lead Alkyls (TEL), Petroleum Specialties and Performance
Chemicals. We understand the drivers, competitors, challenges and opportunities
for each of these businesses.
While the TEL business is declining, it will remain a viable business for a
considerable number of years. TEL remains the most efficient octane enhancer
available, meaning the transition to lead-free fuel is unlikely to happen
globally all at once. Also, in some uses -- piston-engined aircraft, for example
- -- there is no realistic substitute.
However, we do not have the market to ourselves. There are three
competitors: Ethyl Corporation (U.S.), competing in North America and Western
Europe, Alcor/Novoktan
[PHOTO OF STEVE W. WILLIAMS APPEARS HERE]
[SOUND BITE 3 - SEE PAGE 53]
2
<PAGE>
[GRAPHIC APPEARS HERE]
[SOUND BITE 4 - SEE PAGE 53]
(Switzerland/Eastern Germany) and Sintez(Russia). However, our competitive
advantages are substantial.
A SERVICE ADVANTAGE One advantage is our size. Serving a market that spans the
globe, we are the clear number one player in the TEL market. We supply our
global distribution network from a world-class manufacturing facility in
Ellesmere Port, UK and subsidiaries and offices across the world. We can provide
a range of services that go well beyond the delivery of product. All of this
gives customers compelling reasons to make Octel the supplier of choice.
Our profile is raised further by the fact that, as the industry leader, we have
taken on the role of setting standards. Through our Product Stewardship Program
- -- which focuses on excellence in safety and quality -- and our environmental
services team, we will help the industry work responsibly and safely during the
decline of lead.
OPPORTUNITIES IN CONSOLIDATION Given the rapid decline in TEL, and the high
costs and logistical complexity facing the industry, we decided immediately
after the spin-off to seek opportunities for industry consolidation.
[PICTURE APPEARS HERE]
[SOUND BITE 5 - SEE PAGE 53]
3
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[PHOTO OF MAN AT CONTROL PANEL APPEARS HERE]
[SOUND BITE 6 - SEE PAGE 53]
[GRAPHIC APPEARS HERE]
In October, we forged a marketing alliance with Ethyl Corporation to improve
services to customers outside the U.S. and Western Europe. The cultural
similarities between the companies and our joint commitment to safety, quality
and excellence give us confidence that the alliance will allow us to manage the
decline efficiently and increase our ability to meet the full range of customer
needs. We will continue to seek further opportunities for consolidation,
maintaining our leadership position and ensuring that our global customers
receive the service and support they demand.
4
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GRAPHIC APPEARS HERE]
[PHOTO OF ALAN G. JARVIS APPEARS HERE]
[SOUND BITE 7 - SEE PAGE 53]
OUR OPPORTUNITY FOR GROWTH
As we generate revenues from our lead business to pay back debt, we are also
building our position in Specialty Chemicals, where we are concentrating on two
main markets: Petroleum Specialties and Performance Chemicals.
The larger of the two is Petroleum Specialties, a performance fuel additives
business built on the TEL operation. Over the last 8 years our global coverage
and extensive customer network has enabled us to build a solid business with
sales of $64M in 1998. We believe that our long experience in fuels and our
broad market presence will be an ongoing advantage.
A NEED FOR CLEANER FUELS Recognizing the opportunity in the demand for cleaner-
burning and more efficient fuels early on, we have used our experience to
develop a range of products and customized performance blends for both diesel
and gasoline engines. We are now one of the largest independent suppliers of
products that enable our petroleum industry customers to improve and
differentiate their products in the marketplace.
Petroleum Specialties' Refinery Services unit supplies a growing list of
products and services that improve operational efficiences and product
performance at the Refinery.
[PHOTO OF CHEMICAL CONTAINERS APPEARS HERE]
[SOUND BITE 8 - SEE PAGE 53]
5
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[SOUND BITE 9 - SEE PAGE 53]
Also, in December we completed the acquisition of Pluto from Veba Oel. The
company, which now operates as Octel Deutschland GmbH, opens wide new marketing
opportunities to serve customers in more places with an expanded range of
Petroleum Specialty products.
Our second growth opportunity, Performance Chemicals, originally centered on
intermediates and raw materials related to our main businesses. Our focus as we
go forward is to develop high performance, and particularly environmentally
friendly, products from our technology base. The major current product line is
Octaquest(R), which was originally developed for the detergent market. We are
now finding applications in the personal care, paper, photographic and other
markets where biodegradability is a key requirement.
BUILDING ON STRENGTHS We are not the volume leader in these growth industries,
but we do have a strong niche position and an excellent technology base --
footholds we need to become a major factor in the market in the future.
In Petroleum Specialties, we are developing interesting combustion enhancers
for both diesel and gasoline. The acquisition of Pluto has added Ferrocene, an
iron-based
[ARTWORK APPEARS HERE]
SOUND BITE 10 - SEE PAGE 53]
6
<PAGE>
[PHOTO APPEARS HERE]
[SOUND BITE 11 - SEE PAGE 53]
combustion improver, into our family of products, giving us flexibility in
formulating to meet the new, vigorous air standards being introduced. In
Performance Chemicals, the Octaquest technology is the platform for the
development of a family of products, such as Octahib(R), a biodegradable
corrosion inhibitor that protects metal.
BALANCED OPTIONS FOR GROWTH We have a number of ways we can grow the business
beyond organic growth from home-grown R&D. Among the relatively low-cost,
low-risk options for building our business are: licensing, acquisitions, custom
synthesis and developing ways to use existing technologies in product
applications for new markets.
For example, the licensing program we launched in 1998 will allow us to
introduce new technologies into a number of our markets. Many of the industries
that are moving toward outsourcing manufacturing are benefiting from our
infrastructure and experience.
PRODUCTS FOR NEW MARKETS Another clear opportunity is to move products currently
sold by Petroleum Specialties into other market segments without high market
entry and
[DIAGRAM APPEARS HERE]
[SOUND BITE 12 - SEE PAGE 53]
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[BACKGROUND PHOTO APPEARS HERE]
[SOUND BITE 13 - SEE PAGE 54]
development costs. One good example is Stadis(R), an anti-static agent for
fuels that could have many other similar applications in various manufacturing
processes.
Finally, we intend to accelerate the growth of the company over time through
bolt-on acquisitions. These will be companies that are small, affordable and in
areas we know.
They typically will help us fill strategic gaps and move faster in building
shareholder value.
[PHOTO APPEARS HERE]
[SOUND BITE 14 - SEE PAGE 54]
8
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PLAN IN MOTION
Real change, of course, is more than a strategic course correction. It takes a
rethinking of the basics -- people, costs and operations. It takes rebuilding
around new realities.
THE PEOPLE FACTOR Once a fairly traditional hierarchy, we are recreating our
culture around heavy employee involvement in decision-making and open, two-way
communications. We have asked our people for their ideas and their support. The
response of our employees and their representatives during a difficult period of
downsizing has been outstanding. They have been absolutely key to the
progress we have made, and they are critical to our future.
HOLDING THE MARGINS Rather than pursuing individual cost-improvement programs on
an ad hoc basis, we adopted a strategic cost management program. Continuous cost
improvement is central to all we do: our lines of business, our site operations
and our longer-term investment plans. A key step was to reduce capacity we would
no longer need. In 1996 we closed both our French and Italian manufacturing
operations, consolidating all TEL manufacture at Ellesmere Port.
[PHOTO APPEARS HERE]
[SOUND BITE 15 - SEE PAGE 54]
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<PAGE>
[SOUND BITE 16 - SEE PAGE 54]
Also, from May 1996 to the end of 1998, we reduced our employee force by
approximately 50 percent. However, as we continue to rationalise, we will also
continue to create new and better management systems, performance measurements
and training programs.
A MATTER OF RESPONSIBILITY To improve on our past safety and environmental
record, we have adopted Organizational Stewardship as a core value -- which
means we answer not only to our profit statement, but also to the safety of our
employees and neighbors and the well-being of the environment.
We have signed up to the Guiding Principles of the Chemical Industries
Association's Responsible Care Program, and we have set new internal improvement
targets. As a result of these and related efforts, we have improved our safety
record for the third consecutive year. There is still more improvement to be
made, but we are clearly on the right track.
A CLEAR PATH FORWARD The productive year behind us is a first, solid step along
what I see as a five-year horizon. The first years, by necessity, will focus on
managing our current business and paying down our debt ahead of schedule. But,
[SOUND BITE 17 - SEE PAGE 53]
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[SOUND BITE 18 - SEE PAGE 54]
as we manage those situations, we will be moving forward toward a new and
exciting future for Octel and our shareholders.
My thanks to you, our shareholders, for your support, and to our
employees for all you have done in making our future possible.
Sincerely,
/s/ Dennis J. Kerrison
DENNIS J. KERRISON
President and Chief Executive Officer, Octel Corp.
[SOUND BITE 19 - SEE PAGE 53]
11
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[PHOTO OF DR ROBERT E. BEW APPEARS HERE]
CHAIRMAN'S MESSAGE
I am pleased to have chaired the company through its first eight months as a
public company and to have seen it deliver performance in line with
expectations.
I believe our performance relates directly to the quality of leadership. In
addition to a very experienced management team, we have assembled a first-rate
Board of Directors, giving us a wealth of international experience in the
chemical, petrochemical and financial services industries. Guiding our efforts
is a system of good Corporate Governance practices to meet our shareholders'
expectations.
The most tumultuous period of change is now behind us. Ahead, I believe, is a
time of building on the platform we have created, and of progress in our number
one objective: creating a business that delivers value for our shareholders.
Sincerely,
/s/ Dr Robert E. Bew
DR. ROBERT E. BEW
Chairman, Octel Corp.
[SOUND BITE 20 - SEE PAGE 54]
12
<PAGE>
FINANCIALS
14. Management's Discussion and Analysis of Financial Condition and Results of
Operations
24. Management's Statement of Responsibility for Financial Statements
25. Report of Independent Accountants
26. Consolidated Statements of Income
27. Consolidated Balance Sheets
28. Consolidated Statements of Cash Flows
29. Consolidated Statements of Stockholders' Equity
30. Notes on Consolidated Financial Statements
47. Quarterly Summary (Unaudited)
48. Board of Directors
48. Corporate Officers
49. Investor Information
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
----------------------------------------------------------------------
The following discussion is based upon the separate financial statements of the
Company,which present the Company's results of operations, financial position
and cash flows. In so far as they relate to the periods prior to May 22, 1998
when the spin-off of Octel Corp. from the Great Lakes Chemical Corporation group
(GLCC) was consummated, these financial statements include the assets,
liabilities, income and expenses that related to the Octel businesses as they
were operated as a part of the Petroleum Additives Business Unit of GLCC, and
the Company's statement of income includes all the related costs of doing
business,including charges for the use of facilities and for employee benefits.
The financial information included herein, however, may not necessarily reflect
the results of operations,financial position and cash flows that would have been
achieved if the Company had been an independent company during the periods
presented.
Some of the information presented in this Annual Report constitutes forward-
looking comments within the meaning of the Private Litigation Reform Act of
1995. Although the Company believes its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Factors which could cause actual results to differ from
expectations include, without limitation, the timing of orders received from
customers, the gain or loss of significant customers, competition from other
manufacturers and changes in the demand for the Company's products, including
the rate of decline in demand for tetraethyl lead(TEL). In addition, increases
in the cost of product, changes in the market in general and significant changes
in new product introduction could result in actual results varying from
expectations.
The Company has three businesses -- Lead Alkyls (TEL), Petroleum Specialties and
Performance Chemicals. TEL is the Company's principal product, and the Company
is the world's leading manufacturer of TEL. Over the last few years,
approximately 70% of the Company's TEL production has been sold on a retail
basis to oil refineries, and the remaining 30% has been sold to distributors,
principally Ethyl Corporation (Ethyl), under long-term wholesale
contracts.Pricing to distributor customers is substantially below pricing to
retail refinery customers.
From 1989 to 1995, the Company was able to substantially offset the financial
effects of the declining demand for TEL through higher TEL pricing. The
magnitude of these price increases reflected the cost effectiveness of TEL as an
octane enhancer as well as the high cost of converting refineries to produce
higher octane grades of fuel. More recently, however, as the optimum TEL levels
in gasoline have been reached, and as competition has
14
<PAGE>
intensified due to the decline in demand for TEL, it has been increasingly
difficult for the Company to secure general price increases. The Company expects
that this trend will continue in the foreseeable future.
As world demand for TEL has declined,the Company has been reducing its cost base
in an attempt to maintain its margins. In 1989, the Company closed its German
manufacturing facility. In 1996, the Company ceased production at its Italian
and French manufacturing facilities. The closure of the Italian and French
facilities has reduced the Company's workforce by 193 and will result in a
further reduction of 59 employees upon substantial completion of site
remediation activities in France. All of the Company's current TEL requirements
are now produced at its sole remaining TEL manufacturing facility which is
located in Ellesmere Port in the United Kingdom. In December, 1998 one of the
three TEL buildings on this site was closed. Since 1996, the Company's cost
reduction efforts and operating improvement programs in the UK have reduced the
workforce by 686 people as at December 31, 1998 and by mid 1999 the total UK
workforce will be reduced by 50% from the 1,800 employed in June 1996. All this
has been achieved through voluntary severance programs. The Company will
continue to downsize its manufacturing and operating cost base and restructure
its operations as the TEL market continues to decline.
RECENT DEVELOPMENTS
----------------------------------------------------------------------
On September 29, 1998 the Company announced that its UK subsidiary The
Associated Octel Company Limited (Associated Octel) had signed agreements with
Ethyl Corporation and its UK subsidiary to market and sell TEL in areas of the
world excluding North America and the European Union. The agreements, which
became effective October 1, 1998, finalized the memorandum of understanding
between the companies previously announced on July 27, 1998. Under the
agreements, all marketing and sales efforts made to customers are made in the
name of Associated Octel. Ethyl provides bulk transportation services in support
of the agreements while Octel continues to produce all TEL marketed under these
agreements. Depending upon cost, performance and flexibility, one or both
companies provide under the agreements other TEL services. As countries move
increasingly toward lead-free fuel and the demand for TEL continues to decline,
it becomes increasingly more expensive to market, sell, manufacture and
distribute a given quantity of TEL. The Company believes that significant cost
savings can be achieved under these agreements by permitting more efficient
marketing, sales and distribution of TEL products.
In order to diversify and expand its non-TEL product line, in December 1998 the
Company concluded an agreement with Veba Oel AG for the acquisition of its
petroleum specialties subsidiary, Chemische Betriebe Pluto GmbH (Pluto). Based
in Herne, Germany, Pluto manufactures and sells fuel additives mainly based on
ferrocene, an iron-based metal organic product used as a combustion improver and
octane enhancer. Pluto has annual sales of approximately $18 million. The
Company and Pluto had already entered into a joint marketing arrangement in
1997.
The Company continues to reduce TEL costs in line with the market decline and
announced another voluntary severance program in September 1998 which is to be
implemented in early 1999. The Company closed one TEL building at the end of
1998 and has announced a formal review into the economics of manufacturing raw
materials currently produced to support the manufacture of TEL.
15
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
---------------------------------------------------------------------------
Net sales decreased $74.1 million (or 14%) in 1998 to $465.0 million from $539.1
million in 1997. Net sales by business area are set forth in the following
table:
<TABLE>
<CAPTION>
INCREASE
(DOLLARS IN MILLIONS) 1998 1997 (DECREASE)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TEL $ 369.0 79% $ 442.0 82% (16)%
PETROLEUM SPECIALTIES 63.9 14 62.6 12 2
PERFORMANCE CHEMICALS 32.1 7 34.5 6 (7)
---------------------------------------------------------------------------
TOTAL $ 465.0 100% $ 539.1 100% (14)%
---------------------------------------------------------------------------
</TABLE>
TEL sales in 1998 were $73 million (16%) lower than 1997, attributable to volume
decreases of $65.5 million and price reductions of $9.1 million offset by
exchange gains of $1.6 million. The reduction is largely due to the decreased
worldwide demand for TEL which reduced volumes and increased surplus capacity
and competition in the marketplace.
Retail TEL volumes decreased by 9% to 50,600 metric tons, and prices fell by 3%.
Sales on a wholesale basis fell in volume terms by 45% to 13,400 metric tons,
principally due to reduced off-take by Ethyl.
Petroleum Specialties net sales in 1998 were $63.9 million, an increase of 2%
over 1997 levels, despite reduced market demand for additives in Asia Pacific.
The acquisition of Pluto (now Octel Deutschland) in December 1998 will add to
sales in 1999 but its results are not included in 1998.
Performance Chemicals net sales in 1998 were $2.4 million (7%) below 1997
levels, mainly as a result of reduced demand for Octaquest(R) and a plant
maintenance shutdown, prior to expansion during the year.
Gross profit of $220.7 million in 1998 was $44.0 million (17%) below 1997
levels. As a percentage of sales, gross profit in 1998 was 47% compared to 49%
in 1997. The reduction reflects the decline in TEL sales but also reflects an
increase in rationalization charge from $13 million to $16 million, including
the settlement of all liabilities relating to the Bussi site (Italy) in return
for a payment of $5 million.
Operating expenses in 1998 were $85.8 million, increased by $15.8 million (23%)
on 1997. The increase is principally due to higher amortization charges on
intangible assets from $27.6 million in 1997 to $42.6 million in 1998, mainly
resulting from the acquisition in late 1997 of the minority interest in the
Company's subsidiaries previously held by Chevron Chemical Company
(Chevron). Sales, general and administrative expenses were $40.1 million
compared to $38.6 million in 1997, but the increase of $1.5 million includes
$3.0 million of public company costs which did not exist in 1997.
Operating income in 1998 was $134.9million, a return of 29% on net sales. The
reduction in the rate of return from 36% in 1997 was mainly the result of lower
gross profit and increased amortization charges.
16
<PAGE>
Interest expense in 1998 was $25.2 million compared to $2.2 million in 1997.
Interest on the Senior Debt and Notes issued in connection with the spin-off
from GLCC was $21 million for the eight months through December, the balance
being interest paid to GLCC on loans to fund the acquisition of Chevron's
minority interest in November 1997. Interest income decreased from $3.9 million
in 1997 to $2.7 million in 1998.
The decrease in other expenses and other income, compared to 1997, of $1.8
million and $4.6 million, respectively, relates to foreign exchange movement
from an income of $6.8 million to an expense of $2.5 million.
The minority interest in the Company was acquired from Chevron in the fourth
quarter of 1997, resulting in an improvement of $24.3 million in profit
attributable to the Company in 1998.
Income tax charges of $41.5 million in 1998 decreased by $15.2 million from
1997, largely due to the decrease in pre-tax profits but also due to a $3.5
million refund of Italian withholding tax received by the Company.
FISCAL 1997 COMPARED TO FISCAL 1996
----------------------------------------------------------------------
Net sales decreased $58.3 million (or 10%) in 1997 to $539.1 million from
$597.4 million in 1996. Net sales by business are set forth in the
following table:
<TABLE>
<CAPTION>
INCREASE
(DOLLARS IN MILLIONS) 1997 1996 (DECREASE)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TEL $ 442.0 82% $505.1 85% (12)%
PETROLEUM SPECIALTIES 62.6 12 70.9 12 (12)
PERFORMANCE CHEMICALS 34.5 6 21.4 3 61
----------------------------------------------------------------------
TOTAL $ 539.1 100% $597.4 100% (10)%
----------------------------------------------------------------------
</TABLE>
This total decrease was primarily attributable to a decline in sales volume of
$67.9 million which was partly offset by a price increase of $8.7 million and
foreign exchange gains of $0.9 million. In 1997 the retail volume of TEL sold
was 55.8 thousand metric tons as compared with 63.8 thousand metric tons in
1996, a decline of approximately 12%, which was slightly improved from the 13%
annual volume decline experienced in 1996. Reduced sales in Western Europe, the
Middle East and Australia were partly offset by increases in Eastern Europe and
Central America, but the Company believes it maintained its share of the
worldwide retail TEL market during this period. Retail sales prices of TEL
increased by approximately 2% in 1997 as compared to 1996. Product pricing
reflected (i) the Company's strategy to extend the life of TEL by reducing or
foregoing price increases, (ii) changing refinery economics related to achieving
octane ratings by using different production processes, (iii) a changing mix of
customers and regions of the world where TEL is sold (e.g., TEL demand in higher
priced regions declined at a faster rate than in other regions), and (iv)
aggressive pricing by competitors. Sales of TEL on a wholesale basis decreased
by approximately 20% in 1997 as compared to 1996, declining from 30.2 thousand
metric tons in 1996 to 24.2 thousand metric tons in 1997. This higher than
normal rate of decline mainly resulted from a Mexican phase-out of leaded
gasoline, which market had been supplied by E.I. du Pont de Nemours & Company
(DuPont) with TEL purchased from the Company. The ratio of the Company's retail
TEL sales
17
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to wholesale TEL sales was 70/30 in 1997 as compared to 68/32 in 1996. Net sales
of Petroleum Specialties declined 12% in 1997 as compared to 1996 because of the
loss of a major customer, while net sales of Performance Chemicals increased 61%
in 1997 as compared to 1996 because of increased demand for Octaquest, a
biodegradable chelating agent used in laundry products.
Gross profit decreased $33.9 million (or 11%) in 1997 to $264.7 million from
$298.6 million in 1996 because lower TEL volumes and adverse currency effects
offset selling price gains and cost improvements. As a percentage of net sales,
gross profit decreased to 49.1% in 1997 as compared to 50% in 1996. This
decrease also reflects TEL being a lower percentage of total sales in 1997.
Operating expenses decreased $2.5 million (or 3.4%) in 1997 to $70.0 million
from $72.5 million in 1996 primarily as a result of cost reduction programs,
including a decrease in research and development expenses of $1.8 million, net
of unfavorable currency translations. As a percentage of net sales, operating
expenses increased in 1997 to 13.0% as compared to 12.1% in 1996.
Other income increased $6.7 million to $7.9 million in 1997 from $1.2 million in
1996 mainly due to foreign currency gains of $6.8 million.
LIQUIDITY AND FINANCIAL CONDITION
----------------------------------------------------------------------
Cash provided by operating activities in 1998 amounted to $238.3 million, an
increase of $70.8 million (42%) over 1997. $45 million of the working capital
reduction related to tax because cash flows in respect of 1997 taxation
liabilities were met by GLCC as part of the spin-off. A further $83.6 million
reduction resulted from internally generated working capital reductions, notably
in debtors where reduced sales levels and a reduction in debtor days from 109
days to 98 days combined to create a $53.6 million reduction. Inventory levels
increased overall, with raw material reductions more than offset by $25 million
increases in finished goods due to bulk shipping patterns and the inclusion of
$3 million of Octel Deutschland inventories on acquisition.
Total expenditure on plant closures was $27.8 million compared to $35.3 million
in 1997. Of this $14.9 million related to personnel severance, and a further
payment of $5 million was made in settlement of all remediation liabilities at
the Bussi site in Italy.
Cash outflows in investing activities included capital expenditure of $23.5
million and business combinations of $26.4 million, the latter including $9.4
million relating to the acquisition of Octel Deutschland and $8.7 million paid
to a former partner in the Cetex International joint venture to acquire the
goodwill and customer list of the Cetex diesel fuel additives business.
Payments of $468.5 million were made to GLCC in 1998, principally relating to
the spin-off. External borrowings in the year relate to the Senior Notes of $150
million and the Senior Debt of $280 million and $11 million under the Revolving
Credit Facility which were put in place as part of the spin-off. During the year
$140 million, 50% of the Senior Debt, was repaid.
18
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In the period from August to year-end the Company undertook a stock
buyback program and repurchased 882,280 shares at an aggregate cost of
$14.0 million. 53,228 shares were issued at an aggregate cost of $0.8 million,
comprising 3,000 new stock and 50,228 reissued treasury stock.
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
----------------------------------------------------------------------
Between 50% and 60% of the Company's sales are in US dollars. Foreign currency
sales, primarily in UK pounds sterling, offset most of the Company's costs,
which are also in UK pounds sterling. To the extent required by the Company,
dollars are sold forward to cover local currency needs. The instruments utilized
by the Company in its hedging activities are considered risk management tools,
and are not used for trading or speculative purposes. The Company diversifies
the counterparties used and monitors the concentration of risk to limit its
counterparty exposure.
ENVIRONMENTAL MATTERS AND PLANT CLOSURES
----------------------------------------------------------------------
The Company is subject to laws, regulations and legal requirements relating to
the use, storage, handling, generation, transportation, emission, discharge,
disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes (Environmental Laws) in all of the countries in which it
does business. Under certain Environmental Laws, the Company is responsible for
the remediation of hazardous substances or wastes at currently or formerly owned
or operated properties.
The manufacturing operations of the Company have been conducted outside the
United States and, therefore, any liability of the Company pertaining to the
investigation and remediation of contaminated properties is likely to be
determined under non-US law.
Management believes (based upon its internal review and the review of reports
prepared by independent experts) that the Company is in material compliance with
all applicable Environmental Laws. Such expenditure as is required to maintain
compliance has been and will continue to be made at all sites for which the
Company has responsibilities. The Company has developed estimates for the costs
of compliance, which are set out below. Management believes these to be
reasonable (based upon its internal review and the review of reports prepared by
independent experts). There can be no assurance, however, that these estimates
will prove accurate or that the Company will not incur costs in excess of these
estimates. Further, there can be no assurance that changes in existing laws, or
the discovery of additional environmental liabilities associated with current or
historical operations, will not require the Company to incur material costs or
otherwise adversely affect the Company's business, results of operations or
financial condition.
Total expenditure on remediation, decontamination and demolition projects
related to the closed manufacturing sites in France, Germany and Italy amounted
to $10.6 million, $13.1 million and $2.8 million in the years 1998, 1997 and
1996, respectively. In December 1998 the Bussi site in Italy was transferred to
Ausimont SpA, and in return for a payment of $5 million Ausimont SpA has
accepted full responsibility for remediation and has indemnified
19
<PAGE>
the Company against all current and future environmental liabilities. Other
expenditure of $5.6 million in 1998 relates to ongoing projects.
At Ellesmere Port site in the UK remediation, decontamination and demolition
revenue expenditure was $2.3 million, $0.4 million and $0.9 million and capital
expenditure was $2.7 million, $0.6 million and $0.1 million in the years 1998,
1997 and 1996, respectively.
In addition to environmental compliance the Company has also incurred personnel
severance costs in relation to the ongoing management of the decline in TEL
business. Total severance costs group-wide were $14.9 million, $21.8 million and
$16.0 million in the years 1998, 1997 and 1996, respectively.
Management estimates the total future revenue costs of environmental matters to
be as follows:
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
----------------------------------------------------------------------
<S> <C> <C>
ENVIRONMENTAL -- OVERSEAS GROSS $10
-- LESS RECOVERIES (6)
----------------------------------------------------------------------
4
-- UK 56
----------------------------------------------------------------------
TOTAL ENVIRONMENTAL 60
SEVERANCE 35
----------------------------------------------------------------------
$95
----------------------------------------------------------------------
</TABLE>
Of the total environmental costs some $34 million relates to costs which will
not be incurred unless and until all manufacturing operations at Ellesmere Port
cease and the site is sold to third parties. Capital costs, not included in the
$95 million noted above, are estimated at $18 million. The majority of
expenditure in 1999 is expected to relate to severance costs of some $16
million.
INFLATION
----------------------------------------------------------------------
Inflation has not been a significant factor for the Company over the last
several years. Management believes that inflation will continue to be moderate
over the next several years.
SINGLE EUROPEAN CURRENCY
----------------------------------------------------------------------
In January 1999, certain European countries began the transition to the Euro.
The transition to the Euro has both internal recordkeeping and external
commercial aspects, neither of which are expected to have a material effect on
the Company's business, results of operations or financial condition.
20
<PAGE>
YEAR 2000
----------------------------------------------------------------------
Octel is implementing a program of work, the objective of which is to ensure
that the Company is not adversely affected by "Date Discontinuity" problems in
computers, software and embedded processors during the transition from 1999 to
2000 and as a result of 2000 being a leap year.
Date discontinuity occurs when time as expressed by a system or its software
does not move forward successfully in line with true time. The most commonly
known manifestation of this occurs in systems that recognize years as two digits
and, when moving from `99' to `00', recognize `00' as 1900 or fail altogether.
Additionally, some systems fail to recognize 2000 as a leap year, omitting Feb
29th from their calendars.
PROJECT SCOPE
-------------
The project covers Information Technology (IT) systems, embedded processors,
supply chain and business continuity.
IT systems include central and network hardware, business systems and desktop
hardware and software. Octel has very little bespoke software, the majority
being industry standard packages, customized only where necessary.
Embedded processors include, for example, plant instruments, laboratory
equipment, control systems, data acquisition systems, vehicles and
telecommunications.
Supply chain considerations include liaison with suppliers and customers about
our respective states of readiness for the Year 2000.
Business continuity will consider all areas of the business and put in place
contingency plans to mitigate the consequences arising from key risks
identified.
The project covers all Octel Corp. sites.
PROGRAM
-------
Work is divided into the following key stages:
1. Inventory of hardware, software and embedded systems
2. Analysis of compliance
3. Defining and planning of solutions
4. Implementation and testing of solutions
5. Confirmation of major suppliers' and customers' state of readiness
6. Contingency planning
Steps 1 and 2 are substantially complete.
Step 3 is progressing in all areas as compliance analysis information is
generated. This is being produced by business process reviews and impact
assessments.
21
<PAGE>
In the UK there are two key IT legacy system replacement programs (Step 4), both
of which are advancing well:
. Replacement of the existing purchasing and sales order processing system.
. Introduction of Windows NT environment, which will result in
substantial replacement of desktop hardware and software.
In Step 5, all current suppliers of goods and services have been approached and
replies have been received from most suppliers. Key suppliers are the subject of
more detailed scrutiny to monitor the progress of their program. Liaison with
key customers is now ongoing.
The risk analysis relevant to the business which feeds into the contingency plan
(Step 6) covers internal processes, resource requirements and supply chain
issues. This program is progressing well.
Octel Corp. expects to be in full Year 2000 readiness for critical systems by
the end of the third quarter 1999 and will then continue to monitor all areas
through January 2000 and beyond.
COSTS
-----
It is estimated that the total cost of achieving Year 2000 compliance will be
approximately $8.0 million of which $6.5 million will be on IT systems and $1.5
million on embedded processors. This figure is subject to ongoing review and
throughout the project life cycle the business benefit of systems is constantly
challenged and redundant systems will be decommissioned prior to the Year 2000.
Approximately $3 million has been spent to date.
RISKS
-----
The most reasonably likely worst case scenario is an event which would shut down
the Sodium manufacturing process. It has been estimated that this would reduce
TEL production for up to six months. During this time the Company would be able
to maintain supplies to its customers but the cost to the business would be
approximately $11 million.
Through its internal and Supplier Year 2000 projects the Company is working to
minimize the probability of such an event occurring and, through its contingency
planning, to mitigate the consequences.
FUTURE OUTLOOK
----------------------------------------------------------------------
The Company is, and for the next several years is likely to remain, highly
dependent on its principal product, TEL. Over the last three years, TEL has
represented more than 80% of the Company's net sales and has provided
essentially all the Company's profits and cash flow. The Company believes that
its strong, although declining, cash flow in the foreseeable future will be
adequate to fund the Company's future capital and operating needs. In addition,
the Company will have access to the $9 million Revolving Credit Facility not
presently drawn down.
World demand for TEL has been in decline since the 1970s, and this trend is
expected to continue. Through the mid-1990s the Company was able, in part, to
offset the effects of declining volumes with selling price increases.
22
<PAGE>
More recently, however, the Company has reduced or foregone price increases in
order to extend the life of the product and to remain competitive with other TEL
marketers and alternate methods of achieving higher octane levels in gasoline.
The Company believes that a competitive pricing environment will continue which
will increasingly limit the ability of the Company to partially offset the
effects of future declines in TEL volumes with price increases.
The Company has and will continue to downsize and restructure its operations
consistent with declining demand for TEL. The cessation of TEL production in
France and Italy and the restructuring of the UK operations have reduced the
cost base to maintain operating margins. Notwithstanding the Company's
continuing downsizing and productivity improvement programs, management expects
the fixed cost per ton of TEL to increase gradually in the future as cost
reductions are not expected to keep pace with declining TEL sales volume.
The marketing agreement with Ethyl positions the Company to optimize returns
over the remaining life of TEL, but is not expected to yield significant
benefits during 1999.
Raw materials, particularly lead, ethylene and salt, account for a substantial
portion of the total manufacturing costs of TEL. These materials are commodities
and are subject to significant price fluctuations over time. While the Company
may or may not be able to pass through to its customers the impact of any such
fluctuations in raw material prices in the future, management does not believe
that any such fluctuations will have a material effect on the Company's results
of operations.
A strong, although declining, cash flow is expected in future years. The Company
does not anticipate any significant capital expenditures, other than maintenance
and environmental compliance costs, in the foreseeable future.
Although the Company anticipates significant sales growth from the Petroleum
Specialties business and the Performance Chemicals business in the future,
earnings from these businesses will not be sufficient to fully offset the
projected decline in TEL sales and earnings, at least over the next several
years.
23
<PAGE>
MANAGEMENT'S STATEMENT OF
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Octel Corp. is responsible for the preparation and
presentation of the accompanying consolidated financial statements and all other
information in this Annual Report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
that are based on management's informed judgements and estimates.
The Company maintains accounting systems and internal accounting controls which
management believes provide reasonable assurance that the Company's financial
reporting is reliable, that assets are safeguarded, and that transactions are
executed in accordance with proper authorization. This internal control
structure is supported by the selection and training of qualified personnel and
an organizational structure which permits the delegation of authority and
responsibility. The systems are monitored by an internal audit function that
reports its findings to management.
The Company's financial statements have been audited by independent accountants,
in accordance with generally accepted auditing standards. These standards
provide for the review of internal accounting control systems to plan the audit
and determine auditing procedures and tests of transactions to the extent they
deem appropriate.
The Audit Committee of the Board of Directors, which consists solely of non-
employee directors, is responsible for overseeing the functioning of the
accounting systems and related internal controls and the preparation of annual
financial statements. The Audit Committee periodically meets with management,
internal auditors and the independent accountants to review and evaluate their
accounting, auditing and financial reporting activities and responsibilities.
The independent accountants and internal auditors have full and free access to
the Audit Committee without management's presence to discuss internal accounting
controls, results of their audits and financial reporting matters.
/s/ Alan G. Jarvis
ALAN G. JARVIS
Vice President and Chief Financial Officer
24
<PAGE>
REPORT OF
INDEPENDENT ACCOUNTANTS
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, cash flows and stockholders' equity present
fairly, in all material respects, the financial position of Octel Corp. at
December 31, 1998, and the results of their operations and their cash flows for
the year in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The financial statements of Octel Corp. as of December 31, 1997 and for
each of the two years ended December 31, 1997 and 1996 were audited by other
independent accountants whose report, dated April 4, 1998, expressed an
unqualified opinion on those statements.
/s/ PricewaterhouseCoopers
PRICEWATERHOUSECOOPERS
February 9, 1999
25
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES(NOTE 2) $ 465.0 $ 539.1 $ 597.4
COST OF GOODS SOLD 244.3 274.4 298.8
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 220.7 264.7 298.6
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 40.1 38.6 40.2
RESEARCH AND DEVELOPMENT 3.1 3.8 5.6
AMORTIZATION OF INTANGIBLE ASSETS 42.6 27.6 26.7
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL 85.8 70.0 72.5
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 134.9 194.7 226.1
INTEREST EXPENSE 25.2 2.2 1.6
OTHER EXPENSES 3.8 5.6 7.5
INTEREST INCOME (2.7) (3.9) (3.5)
OTHER INCOME (3.3) (7.9) (1.2)
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 111.9 198.7 221.7
- ----------------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST -- 24.3 29.6
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES (NOTE 2) 111.9 174.4 192.1
INCOME TAXES (NOTE 5) 41.5 56.7 63.8
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 70.4 $ 117.7 $ 128.3
==================================================================================================================================
BASIC AND DILUTED EARNINGS PERSHARE $ 4.85 $ 7.84 $ 8.08
==================================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING (IN THOUSANDS) 14,514 15,000 15,900
==================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
AT DECEMBER 31 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 26.5 $ 29.7
ACCOUNTS RECEIVABLE (LESS ALLOWANCE OF $0.8 AND $0.9, RESPECTIVELY) 120.6 169.8
INVENTORIES
FINISHED GOODS 61.1 35.7
RAW MATERIALS AND WORK IN PROGRESS 27.8 43.1
- -----------------------------------------------------------------------------------------------------------------
88.9 78.8
PREPAID EXPENSES 4.9 4.4
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 240.9 282.7
PROPERTY, PLANT AND EQUIPMENT (NOTE 9) 116.1 106.0
GOODWILL (NOTE 7) 360.5 379.3
PREPAID PENSION COST (NOTE 3) 73.5 63.3
DEFERRED FINANCING COSTS (NOTE 8) 15.7 --
OTHER ASSETS -- 1.6
- -----------------------------------------------------------------------------------------------------------------
$ 806.7 $ 832.9
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 78.6 $ 40.0
ACCRUED EXPENSES 13.0 9.0
ACCRUED INCOME TAXES 42.6 53.8
CURRENT PORTION OF LONG-TERM DEBT (NOTE 11) 71.0 --
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 205.2 102.8
PLANT CLOSURE PROVISIONS (NOTE 10) 47.1 57.2
DEFERRED INCOME TAXES (NOTE 5) 21.6 20.1
LONG-TERM DEBT (NOTE 11) 229.8 --
OTHER LIABILITIES 1.9 --
GLCC INVESTMENT (NOTE 12) -- 652.8
STOCKHOLDERS' EQUITY (NOTE 13)
COMMON STOCK, $0.01 PAR VALUE, AUTHORIZED
40,000,000 SHARES, ISSUED 14,766,386 SHARES
(ZERO AT 12.31.97) 0.1 --
ADDITIONAL PAID-IN CAPITAL 276.1 --
TREASURY STOCK (832,052 SHARES AT COST) (13.2) --
RETAINED EARNINGS 39.9 --
ACCUMULATED OTHER COMPREHENSIVE INCOME (1.8) --
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 301.1 --
- -----------------------------------------------------------------------------------------------------------------
$ 806.7 $ 832.9
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
27
<PAGE>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 70.4 $ 117.7 $ 128.3
ADJUSTMENTS TO RECONCILE NET INCOME TO
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 59.7 46.8 42.9
DEFERRED INCOME TAXES 1.5 13.3 4.0
OTHER (0.9) 0.5 1.3
CHANGES IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 53.6 26.6 9.2
INVENTORIES (5.7) 1.6 (12.4)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 35.7 (2.6) (19.0)
INCOME TAXES AND OTHER CURRENT LIABILITIES 45.0 (11.6) (9.8)
OTHER NON-CURRENT ASSETS AND LIABILITIES (21.0) (24.8) (16.7)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 238.3 167.5 127.8
CASH FLOWS FROM INVESTING ACTIVITIES
CAPITAL EXPENDITURES (23.5) (17.8) (20.6)
BUSINESS COMBINATIONS, NET OF CASH ACQUIRED (26.4) (130.8) (17.0)
OTHER 1.0 1.6 (14.9)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (48.9) (147.0) (52.5)
CASH FLOWS FROM FINANCING ACTIVITIES
NET CASH PAID TO GLCC (468.5) (31.4) (103.0)
MINORITY INTEREST -- 3.3 7.1
RECEIPT OF LONG-TERM BORROWINGS 441.0 -- --
REPAYMENT OF LONG-TERM BORROWINGS (140.2) -- --
DEFERRED FINANCING COSTS (15.2) -- --
NET REPURCHASE OF COMMON STOCK (NOTE 13) (13.2) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (196.1) (28.1) (95.9)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3.5 (17.6) 21.1
- ---------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3.2) (25.2) 0.5
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 29.7 54.9 54.4
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 26.5 $ 29.7 $ 54.9
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
28
<PAGE>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
CUMULATIVE
TRANS- TOTAL
GREAT ADDITIONAL LATION COMPRE-
LAKES COMMON TREASURY PAID-IN RETAINED ADJUST- HENSIVE
INVESTMENT STOCK STOCK CAPITAL EARNINGS MENT INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $ 530.8 $ -- $ -- $ -- $ -- $ -- $ --
NET INCOME -- -- -- -- 128.3 -- 128.3
PAYMENTS TO GLCC (102.3) -- -- -- -- -- --
NET CTA* CHANGE -- -- -- -- -- 27.8 27.8
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL 428.5 -- -- -- 128.3 27.8 156.1
TRANSFER (NOTE 12) 156.1 -- -- -- (128.3) (27.8) (156.1)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 584.6 -- -- -- -- -- --
NET INCOME -- -- -- -- 117.7 -- 117.7
PAYMENTS TO GLCC (31.0) -- -- -- -- -- --
NET CTA* CHANGE -- -- -- -- -- (18.5) (18.5)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL 553.6 -- -- -- 117.7 (18.5) 99.2
TRANSFER (NOTE 12) 99.2 -- -- -- (117.7) 18.5 (99.2)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 652.8 -- -- -- -- -- --
NET INCOME -- -- -- -- 70.4 -- 70.4
NET CTA* CHANGE -- -- -- -- -- (1.8) (1.8)
SPIN-OFF (NOTE 1) (652.8) 0.1 -- 276.1 (30.5) -- (30.5)
REPURCHASE OF TREASURY
STOCK (NOTE 13) -- -- (14.0) -- -- -- --
SHARE ISSUE (NOTE 13) -- -- 0.8 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 -- 0.1 (13.2) 276.1 39.9 (1.8) 38.1
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Cumulative translation adjustment
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
29
<PAGE>
NOTES ON CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
----------------------------------------------------------------------
BASIS OF PRESENTATION
---------------------
Until May 22, 1998 the Company was a wholly-owned subsidiary of GLCC. On May 22,
1998 GLCC consummated the spin-off of its petroleum additives business by
distributing shares in the Company to the stockholders of GLCC in a ratio of one
Company share for every four GLCC shares held (the spin-off). In connection with
the spin-off, the Company issued 14,762,417 shares of common stock on May 26,
1998.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include all subsidiaries of the
Company. All significant intercompany accounts and balances have been eliminated
upon consolidation.
All acquisitions are accounted for as purchases and the results of operations of
the acquired businesses are included in the combined financial statements from
the date of acquisition.
The combined financial statements presented herein for the years ended December
31, 1997 and 1996 give effect to the spin-off as a transfer of ownership
interests between entities under common control. Accordingly, the financial
statements reflect the assets, liabilities, revenues and expenses of GLCC's
petroleum additives business, adjusted only for those parts of that business
which remained part of GLCC after the spin-off. The financial statements have
been prepared as if the Company had existed as an independent entity for all
years and include allocations of certain GLCC expenses prior to the spin-off.
Management believes these allocations are reasonable.
The financial information relating to the pre spin-off period may not
necessarily reflect the consolidated financial position, results of operations
or cash flows of the Company that would have been achieved if the Company had
been a separate, independent company.
NATURE OF OPERATIONS
--------------------
The Company is a major manufacturer and distributor of TEL, Petroleum
Specialties and Performance Chemicals. Its primary manufacturing operation is
located at Ellesmere Port in the United Kingdom. The Company's products are sold
globally, primarily to oil refineries. Principal product lines are TEL, other
petroleum additives and performance chemicals.
On October 1, 1998, the Company entered into sales and marketing agreements with
Ethyl Corporation (Ethyl) to market and sell TEL in all areas of the world
except North America and the European Economic Area (the Territory) for the
period to December 31, 2009. All marketing and sales effort made under the
arrangement is made in the name of Octel. Octel will continue to produce all TEL
marketed under the agreements and also provide marketing and other services.
Ethyl will continue to provide bulk distribution services, marketing and other
30
<PAGE>
services related to sales made within the Territory. The net proceeds under the
agreements are paid to Octel and Ethyl as compensation for services and are
based on an agreed-upon formula with Octel receiving approximately two-thirds of
the total compensation for services provided. No separate legal entity or joint
venture has been established as a consequence of the agreements. Sales and
expenses incurred under the agreements are included within Octel's income
statement. These comprise all revenues and costs incurred directly by Octel,
together with costs recharged by Ethyl for distribution and other services
provided under the terms of the agreements. Ethyl's share of the net proceeds
for services is charged as a distribution expense within cost of goods sold.
USE OF ESTIMATES
-----------------
The preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the amount reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
REVENUE RECOGNITION
--------------------
Revenue from sales of products is recognized at the time products are shipped to
the customer or, in the case of bulk shipments, at the time of delivery to
the customer.
CASH EQUIVALENTS
----------------
Investment securities with maturities of three months or less when purchased
are considered to be cash equivalents.
INVENTORIES
-----------
Inventories are stated at the lower of cost (FIFO method) or market price.
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the assets using the
straight-line method. The cost of additions, improvements and interest on
construction are capitalized. Maintenance and repairs are charged to expense
when incurred.
GOODWILL
--------
Goodwill, the excess of investments over the net assets of subsidiaries
acquired, is amortized over periods of up to 35 years. The majority of goodwill
relates to the TEL business and is being amortized over 10 years, the expected
remaining life of the business. The Company regularly evaluates the
realizability of goodwill based on projected undiscounted cash flows and
operating income for each business with material goodwill balances.
31
<PAGE>
DEFERRED FINANCING COSTS
------------------------
The costs related to debt financing are classified as intangible assets in the
balance sheets. All are amortized over the life of the debt.
MINORITY INTEREST
------------------
Minority interest represents income before income taxes as earnings are
predominantly from a partnership and taxes are therefore paid by each partner
individually.
DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------
The Company uses various derivative instruments including forward contracts and
options to manage certain foreign currency exposures. These instruments are
entered into under the Company's corporate risk management policy to minimize
exposure and are not for speculative trading purposes. Management periodically
reviews the effectiveness of the use of the derivative instruments.
Derivatives used for hedging purposes must be designed as, and effective as, a
hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the value of the derivative contract must be highly
correlated with changes in the market value of the underlying hedged item at the
inception of the hedge and over the life of the hedge contract. Any derivative
instrument designated but no longer effective as a hedge would be reported at
market value and the related gains and losses recognized in earnings.
Derivatives that are designated as, and effective as, a hedge of foreign
currency commitments are accounted for using the deferral method. Gains and
losses from instruments that hedge firm commitments are deferred and recognized
as part of the economic basis of the transactions underlying the commitments
when the associated hedged transaction occurs. Gains and losses from instruments
that hedge foreign currency denominated receivables, payables and debt
instruments are reported in earnings and offset the effects of foreign exchange
gains and losses from the associated hedged items.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
----------------------------------------
Environmental compliance costs include ongoing maintenance, monitoring and
similar costs. Environmental costs are accrued when environmental assessments or
remedial efforts are probable and the cost can be reasonably estimated. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future obligations are not discounted to their present values.
EARNINGS PER SHARE
------------------
The Company has adopted Statement of Financial Accounting Standard No. 128
"Earnings Per Share" for 1998.
32
<PAGE>
Basic earnings per share is based on the weighted average number of common
shares outstanding during the period, whilst diluted earnings per share includes
the effect of options and restricted stock that are dilutive and outstanding
during the period.
Prior to the spin-off the Company was not a separate operating company with a
capital structure of its own. Weighted average shares outstanding for 1997 and
1996 have been calculated by applying the distribution ratio (one Company share
for every four GLCC shares) to average GLCC shares outstanding.
FOREIGN CURRENCIES
------------------
The local currency has been used as the functional currency throughout the
group. Exchange differences arising on the retranslation of opening balance
sheets of overseas subsidiaries are taken to a separate equity reserve, the
cumulative translation adjustment. Gains and losses on foreign currency
transactions are included in other expenses in the income statement.
2. BUSINESS SEGMENT AND GEOGRAPHICAL AREA DATA
----------------------------------------------------------------------
The Company has adopted Statement of Financial Accounting Standard No. 131
"Disclosures about Segments of an Enterprise and Related Information" for its
annual financial statements.
The Company's operations consist of one dominant industry segment: petroleum
additives.
Within the industry segment the Company has identified three main product
groups: TEL, Petroleum Specialties and Performance Chemicals. The following
table analyzes sales and other financial information by product group:
<TABLE>
<CAPTION>
PRODUCT GROUP DATA
(IN MILLIONS) 1998 1997 1996
------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES:
TEL $ 369.0 $ 442.0 $ 505.1
PETROLEUM SPECIALTIES 63.9 62.6 70.9
PERFORMANCE CHEMICALS 32.1 34.5 21.4
------------------------------------------------------------------------
$ 465.0 $ 539.1 $ 597.4
========================================================================
GROSS PROFIT:
TEL $ 203.5 $ 245.5 $ 281.1
PETROLEUM SPECIALTIES 13.8 13.8 15.9
PERFORMANCE CHEMICALS 3.4 5.4 1.6
------------------------------------------------------------------------
$ 220.7 $ 264.7 $ 298.6
========================================================================
</TABLE>
No discrete financial information is maintained below gross profit level.
33
<PAGE>
IDENTIFIABLE ASSETS AT YEAR END:
--------------------------------
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
------------------------------------------------------------------------
<S> <C> <C> <C>
TEL $ 733.2 $ 766.5 $ 772.3
PETROLEUM SPECIALTIES 51.2 44.3 44.4
PERFORMANCE CHEMICALS 22.3 22.1 24.3
------------------------------------------------------------------------
$ 806.7 $ 832.9 $ 841.0
========================================================================
</TABLE>
The majority of the Company's operations are conducted by its UK enterprises.
Sales are reported in the geographic area where the transaction originates,
rather than where the final sale to customers is made. Intercompany sales are
priced to recover cost plus an appropriate mark-up for profit and are eliminated
in the consolidated financial statements.
Identifiable assets are those directly associated with the operations of the
geographic area.
<TABLE>
<CAPTION>
GEOGRAPHICAL AREA DATA
----------------------
(IN MILLIONS) 1998 1997 1996
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES:
UNITED STATES $ 36.1 $ 39.0 $ 43.6
UNITED KINGDOM 421.6 512.2 527.3
WEST OF EUROPE 70.1 103.5 138.5
SALES BETWEEN AREAS (62.8) (115.6) (112.0)
---------------------------------------------------------------------------------------------------------
$ 465.0 $ 539.1 $ 597.4
=========================================================================================================
INCOME (LOSS) BEFORE INCOME TAXES:
UNITED STATES $ (1.6) $ (1.2) $ 1.7
UNITED KINGDOM 109.4 198.1 208.3
WEST OF EUROPE 4.1 1.8 11.7
=========================================================================================================
$ 111.9 $ 198.7 $ 221.7
---------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS AT YEAR END:
UNITED STATES $ 34.7 $ 30.8 $ 34.8
UNITED KINGDOM 725.1 741.2 717.3
WEST OF EUROPE 46.9 60.9 88.9
---------------------------------------------------------------------------------------------------------
$ 806.7 $ 832.9 $ 841.0
=========================================================================================================
</TABLE>
34
<PAGE>
3. PENSION PLANS
----------------------------------------------------------------------
Statement of Financial Accounting Standard No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits" was issued in December 1997
and is effective for the Company's 1998 fiscal year.
The Company maintains a contributory defined benefit pension plan (The Octel
Pension Plan) covering substantially all UK employees. The Projected Benefit
Obligation (PBO) is based on final salary and years of credited service, reduced
by social security benefits according to a plan formula. Normal retirement age
is 65, but provisions are made for early retirement.
The Company's funding policy is to contribute amounts to the plan to cover
service costs to date as recommended by the Company's actuary. Based on this
advice, no contributions were made by the Company or by its employees in the
years 1998, 1997 and 1996. The plan's assets are invested by two investment
management companies in funds holding UK and overseas equities, UK and overseas
fixed interest security,index linked securities, property unit trusts and cash
or cash equivalents.
Assumptions for the plan as of the end of the last three years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE DISCOUNT RATE 6.25% 7.75% 7.75%
RATE OF INCREASE IN COMPENSATION LEVELS 4.0% 5.5% 5.5%
RATE OF RETURN ON PLAN ASSETS 7.0% 8.5% 8.5%
</TABLE>
Net pension cost for the UK pension plan is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE COST $ 10.6 $ 13.4 $ 12.0
INTEREST COST ON PBO 37.8 39.7 35.2
ACTUAL RETURN ON PLAN ASSETS (5.6) (103.4) (60.6)
NET AMORTIZATION AND DEFERRAL (49.9) 50.8 14.1
---------------------------------------------------------------------------
$ (7.1) $ 0.5 $ 0.7
---------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Movements in PBO and the fair value of plan assets, and the funded status and
prepaid pension cost of the plan are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN PBO
BALANCE AT JANUARY 1 $ 494.6 $ 495.6
INTEREST COST 37.8 40.8
SERVICE COST 10.6 15.0
BENEFITS PAID (22.2) (16.1)
ACTUARIAL GAINS/LOSSES 20.2 (20.6)
EXCHANGE VARIANCE 6.5 (20.1)
---------------------------------------------------------------------------
BALANCE AT DECEMBER 31 547.5 494.6
---------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS
BALANCE AT JANUARY 1 708.2 644.2
ACTUAL BENEFITS PAID (22.2) (21.1)
ACTUAL CONTRIBUTIONS -- 0.7
ACTUAL RETURN ON ASSETS 5.6 110.6
EXCHANGE VARIANCE 9.0 (26.2)
---------------------------------------------------------------------------
BALANCE AT DECEMBER 31 700.6 708.2
---------------------------------------------------------------------------
PLAN ASSETS EXCESS OVER PBO 153.1 213.6
UNRECOGNIZED NET GAIN (82.0) (151.3)
UNRECOGNIZED PRIOR SERVICE COST 7.1 8.0
---------------------------------------------------------------------------
PREPAID PENSION COST 78.2 70.3
ESTIMATED TRANSFER (4.7) (7.0)
---------------------------------------------------------------------------
$ 73.5 $ 63.3
===========================================================================
</TABLE>
The estimated transfer represents prepaid pension cost attributable to employees
who participate in the Octel Pension Plan that remained with GLCC after the
spin-off. Final determination of the transfer is subject to, among other things,
a final actuarial evaluation and election of the employees.
4. STOCK OPTION PLANS
---------------------------------------------------------------------------
Prior to the spin-off, certain employees of the Company participated in
GLCC's employee stock option plans which covered officers and key employees
of GLCC.
The Octel Corp. Savings Related Stock Plan became effective from November 1,
1998. This is a stock purchase plan, open to all employees at the offer date,
whereby employees may save up to $416 per month over a three-
36
<PAGE>
year period. Stock options may then be exercised for a period of six months,
after which the options expire. 141,683 options were granted under the scheme at
a price of $13.20 per share, the market price of the shares at the grant date,
and are exercisable from November 2001 through May 2002. The fair value of the
options was $4.99 estimated using the Black-Scholes model with the following
assumptions: dividend yield 0.0%, expected life of 3 years, volatility 50% and
risk free interest rate of 4.33%.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provision of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (FAS 123). Had
compensation expense for the Company's stock-based compensation plan been
recorded based on the fair value of the stock options at grant date consistent
with the method prescribed by FAS 123, the effect on the Company's net income
and earnings per share for 1998 would not have been material.
5. INCOME TAXES
----------------------------------------------------------------------
Income taxes are accounted for using the asset and liability method pursuant to
Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes
(FAS 109). Deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory rates applicable to future years to
differences between the financial statements carrying amounts and the tax bases
of existing assets and liabilities. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date. In addition, FAS 109 requires the recognition of future tax benefits to
the extent that realization of such benefits is more likely than not.
The sources of income (loss) before income taxes were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C>
DOMESTIC $ (1.6) $ (1.2) $ 1.7
FOREIGN 113.5 175.6 190.4
--------------------------------------------------------------------------
$ 111.9 $ 174.4 $ 192.1
--------------------------------------------------------------------------
</TABLE>
37
<PAGE>
The components of income tax provisions are summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
FEDERAL $ 0.1 $ 0.1 $ 0.1
FOREIGN 39.8 43.3 59.6
------------------------------------------------------------------------
39.9 43.4 59.7
DEFERRED:
FEDERAL -- -- 0.4
FOREIGN 1.6 13.3 3.7
------------------------------------------------------------------------
1.6 13.3 4.1
------------------------------------------------------------------------
$ 41.5 $ 56.7 $ 63.8
------------------------------------------------------------------------
</TABLE>
Cash payments(receipts) for income taxes were $(5.7) million, $62.0 million and
$58.0 million during 1998, 1997 and 1996, respectively. Tax payments in
respect of 1998 were made by GLCC.
The effective tax rate varies from the US federal statutory rate because of
the factors indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------
<S> <C> <C> <C>
STATUTORY RATE 35.0% 35.0% 35.0%
FOREIGN TAX RATE
DIFFERENTIAL (4.9) (3.5) (2.9)
GOODWILL AMORTIZATION 11.3 2.1 1.3
OTHER (4.3) (1.1) (0.2)
------------------------------------------------------------------------
37.1% 32.5% 33.2%
------------------------------------------------------------------------
</TABLE>
Details of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
CLOSURE COSTS $ 12.9 $ 17.7
------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
PENSION COSTS 22.1 18.6
GOODWILL AMORTIZATION -- 4.1
OTHER 12.4 15.1
------------------------------------------------------------------------
34.5 37.8
------------------------------------------------------------------------
TOTAL NET PROVISION $ 21.6 $ 20.1
------------------------------------------------------------------------
</TABLE>
38
<PAGE>
6. ACQUISITIONS
---------------------------------------------
The Company's 100% ownership interest in Octel Associates and The Associated
Octel Company Limited was acquired in three transactions. The Company acquired
a 51.15% interest in 1989, a further 36.67% interest in 1992 and the balance in
1997. The 1989 agreement provides for profit participation payments to be made
to certain former owners (The Vendor Partners) through 2006. Such payments are
treated as an adjustment to the purchase price and for 1998 amounted to $9.0
million.
In 1997 the Company completed the determination of the profit participation
payments for the years 1989 through 1995 resulting in an addition to the
purchase price of approximately $30 million.
On October 31, 1997 the Company acquired certain fractional interests in the
Company's subsidiaries held by the Vendor partners for a nominal amount.
On November 20, 1997 the Company completed the acquisition of the outstanding
minority in the Company's subsidiaries previously owned by Chevron Chemical
Company for $117 million. The excess of purchase price over the value of net
assets was added to goodwill in 1997.
On October 31, 1998 the Company acquired the customer list of the Cetex
International partnership, a diesel additives business in which the Company
previously held a 50% interest, for $8.7 million.
On December 1, 1998 the Company completed the previously announced acquisition
of Chemische Betriebe Pluto GmbH, a petroleum specialties company formerly owned
by Veba Oel AG. The Company, now known as Octel Deutschland GmbH, has
annual sales of approximately $18 million.
7. GOODWILL
-----------------------------------------------
Goodwill comprises the following:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
GROSS COST $ 522.1 $ 496.9
ACCUMULATED AMORTIZATION (161.6) (117.6)
-----------------------------------------------------------------------
$ 360.5 $ 379.3
-----------------------------------------------------------------------
</TABLE>
Based on its most recent analysis the Company believes that no impairment of
goodwill exists as of December 31, 1998.
Amortization of goodwill was $39.9 million, $27.6 million and $26.7 million
in 1998, 1997 and 1996, respectively.
39
<PAGE>
8. DEFERRED FINANCING COSTS
---------------------------------------
Costs related to the financing of the spin-off from GLCC were incurred
during 1998 and are amortized over the related debt profile.
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
---------------------------------------------------------------------
<S> <C> <C>
GROSS COST $ 16.9 $ --
ACCUMULATED AMORTIZATION (1.2) --
---------------------------------------------------------------------
$ 15.7 $ --
---------------------------------------------------------------------
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
The estimated useful lives of the major classes of depreciable assets are
as follows:
BUILDINGS 7 TO 25 YEARS
EQUIPMENT 3 TO 10 YEARS
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
LAND $ 2.9 $ 2.8
BUILDINGS 1.1 0.6
EQUIPMENT 112.0 101.0
CONSTRUCTION IN PROGRESS 31.0 18.4
---------------------------------------------------------------
147.0 122.8
---------------------------------------------------------------
LESS ACCUMULATED DEPRECIATION 30.9 16.8
---------------------------------------------------------------
$ 116.1 $ 106.0
---------------------------------------------------------------
</TABLE>
The estimated additional cost to complete construction in progress is $6.1
million (1997, $17.6 million).
10. PLANT CLOSURE PROVISIONS
------------------------------------------
The liability for estimated closure costs of Octel's TEL manufacturing
facilities includes costs for personnel reductions (severance) and
decontamination and environmental remediation activities (remediation) when
demand for TEL diminishes.
40
<PAGE>
The Company has and will continue to downsize and restructure its
operation consistent with declining demand for TEL. Octel closed its
German manufacturing facility in 1989 and ceased production in Italy and France
in 1996. All of the Company's TEL is now produced at its manufacturing plant at
Ellesmere Port in the UK. In December 1998 one of the three TEL plants at the
Ellesmere Port site was closed. Since 1996 the UK workforce has been reduced by
686 people in response to the downsizing of the TEL plants.
Total plant closure costs are evaluated on a regular basis. As at December
31, 1997, the range of potential net remediation costs was assessed as $45-$133
million, with a most likely cost of $94 million. At the same date management
estimated the additional related severance costs to be $50 million. Management
has revised these estimates as of December 31, 1998 to take account of
expenditure incurred during 1998. The current estimate is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
------------------------------------------------------------
<S> <C> <C>
OPERATING EXPENSES -- REMEDIATION $ 60 $ 74
-- SEVERANCE 35 50
------------------------------------------------------------
95 124
CAPITAL COSTS -- REMEDIATION 18 20
------------------------------------------------------------
$113 $144
------------------------------------------------------------
</TABLE>
The estimated remediation costs shown above include $34 million which comprises
the potential cost of vacating the Ellesmere Port site. Management has no
present intention to adopt this course of action and intends to continue
manufacturing other products at Ellesmere Port when production of TEL ceases.
Consequently, management views the $34 million as a contingent liability.
No provision is made for estimated future severance costs until the employees
concerned have been notified and the expenditure is committed. As stated above,
at December 31, 1998 estimated total future severance costs were $35 million of
which $17.1 million were committed.
Capital remediation costs will be included in property, plant and equipment as
expenditure is incurred, in accordance with Company policy. The costs will be
depreciated over the remaining useful life of the related plant.
The year-end provision of $47.1 million is held to cover operating remediation
expenses (excluding contingencies) of $30.0 million and committed severance
costs of $17.1 million.
41
<PAGE>
Movements in the provision are summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1 $ 57.2 $ 90.3
EXCHANGE EFFECT 2.0 (10.4)
CHARGE FOR THE YEAR 15.7 12.6
EXPENDITURE (27.8) (35.3)
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31 $ 47.1 $ 57.2
-----------------------------------------------------------------------
</TABLE>
Expenditure against provisions was as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
SEVERANCE $ 14.9 $ 21.8 $ 16.0
REMEDIATION -- UK 2.3 0.4 0.9
-- OTHER 10.6 13.1 2.8
-----------------------------------------------------------------------
$ 27.8 $ 35.3 $ 19.7
-----------------------------------------------------------------------
</TABLE>
Capital expenditure relating to environmental matters in 1998, 1997 and 1996 was
$2.7 million, $0.6 million and $1.0 million, respectively.
11. LONG-TERM DEBT
-----------------------------------------------------------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
SENIOR TERM LOAN $ 139.8 $ --
CREDIT FACILITY 11.0 --
SENIOR NOTES 150.0 --
-----------------------------------------------------------------------
300.8 --
-----------------------------------------------------------------------
LESS CURRENT PORTION (71.0) --
-----------------------------------------------------------------------
$ 229.8 $ --
-----------------------------------------------------------------------
</TABLE>
On April 27, 1998 the Company entered into a $300 million secured credit
facility consisting of a $280 million senior secured term loan and a $20 million
revolving credit facility. The credit facility will mature on December 31, 2001
and the term loan is amortized in quarterly installments to December 31, 2001
subject to early repayment conditions. The term loan is secured on the Company's
UK assets. Loans under the credit facility bear
42
<PAGE>
interest at LIBOR plus 1.75 per cent, reducing to LIBOR plus 1.25 per cent when
the outstanding balance under the credit facility is below $140 million or 12
months from first drawdown (whichever is the later).
Also on April 27, 1998 the Company issued $150 million of Senior Notes due 2006.
The Company is required to redeem $37.5 million principal amount of Notes in
each of the years 2003, 2004 and 2005. The notes bear interest at a fixed rate
of 10%.
The proceeds of the credit facility and the notes were used principally to repay
an intercompany loan to GLCC which arose as a result of the acquisition of the
Chevron minority interest as described in note 6 above and to pay a special
dividend to GLCC in connection with the spin-off.
The credit facility and the notes both contain substantial restrictions on the
Company's operations,including the ability to pay dividends.
The following table presents the projected annual maturities for the next
five years after 1998:
<TABLE>
<CAPTION>
(IN MILLIONS)
------------------------------------------------------
<S> <C>
1999 $ 71.0
2000 60.0
2001 19.8
2002 --
2003 37.5
THEREAFTER 112.5
------------------------------------------------------
$ 300.8
------------------------------------------------------
</TABLE>
12. GLCC INVESTMENT
------------------------------------------------------
GLCC investment comprises all GLCC funding, including intercompany balances and
debt prior to the spin-off (see note 1).
Payments to GLCC included exchange effect of $4.7 million, $0.4 million and $0.7
million in 1998, 1997 and 1996, respectively.
The net payment of $31.0 million in 1997 includes the receipt of a short-term
loan from GLCC of $116.8 million used to fund the acquisition of the Chevron
interest described in note 6 above.
43
<PAGE>
13. STOCKHOLDERS' EQUITY
--------------------------------------------------------
On May 26, 1998 the Company issued 14,762,417 shares of common stock with a par
value of $0.01, nil paid, in connection with the spin-off (see note 1).
A further 969 shares were subsequently issued in respect of late notified
changes in GLCC stockholders at the record date of the spin-off issue.
During 1998 the Company's Board of Directors approved a stock buy back program,
authorizing the repurchase of up to $15 million of its stock, as allowed under
its debt covenants. At December 31, 1998 882,280 shares had been repurchased at
an aggregate cost of $14.0 million.
The Company has also issued 53,228 shares to Directors and senior management at
an aggregate cost of $0.8 million, comprising 3,000 new shares and 50,228 issues
from treasury stock.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------
The following table presents the carrying amount and fair values of the
Company's financial instruments at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NON-DERIVATIVES:
CASH AND CASH EQUIVALENTS $ 26.5 $ 26.5 $ 29.7 $ 29.7
LONG-TERM DEBT 300.8 306.8 -- --
DERIVATIVES:
MISCELLANEOUS -- (1.2) -- --
------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair values of
financial instruments:
Cash and cash equivalents: The carrying amount approximates to fair value
because of the short-term maturities of such instruments.
Long-term debt: The carrying amount of term borrowings at variable interest
rates approximates to fair value. The fair value of fixed interest rate debt is
based on the quoted market prices for the same or similar debt.
Derivatives: The fair value of derivatives, including forward exchange contracts
and interest rate swaps, was estimated based on current settlement prices and
comparable contracts using current assumptions.
44
<PAGE>
15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
-----------------------------------------------
The Company has limited involvement with derivative financial instruments and
does not trade them. The Company does use derivatives to manage well defined
interest rate and foreign exchange exposures.
The Company invoices between 50% and 60% of its sales in US dollars, the balance
mainly invoiced in pounds sterling to match the Company's sterling costs. Prior
to the spin-off from GLCC foreign exchange contracts were taken out with GLCC
and (until November 1997) Chevron Chemical Company to hedge dollar income and,
thereby, dollar profit distributions to both parties.
The Company uses interest rate swap, floor and collar and cap agreements to
reduce the impact of changes in interest rates on its floating rate debt.The
swap agreements are contracts to exchange floating rate for fixed interest
payments periodically over the life of the agreements without the exchange of
the underlying notional amounts. The notional amounts of interest rate
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss.
As of December 31, 1998 the Company had the following interest rate instruments
in effect (notional amounts in millions; cap, floor and collar rates based on
3-month LIBOR):
<TABLE>
<CAPTION>
1998
NOTIONAL STRIKE PERIOD
AMOUNT RATE
-----------------------------------------------------------
<S> <C> <C> <C>
INTEREST SWAP $ 100.0 5.87% 12/98-12/01
INTEREST COLLAR 65.7 5.75% 12/98-12/00
5.45%
</TABLE>
No such interest rate agreements were in place at December 31, 1997.
The Company sells a range of TEL and petroleum additives to major oil refineries
throughout the world. Credit limits, ongoing credit evaluation and account
monitoring procedures are utilized to minimize risk. Collateral is not generally
required.
Approximately half of the Company's workforce are covered by a collective
bargaining agreement which expires on January 1, 2000.
16. RELATED PARTY TRANSACTIONS
----------------------------------------------------------------
The Company sells significant qualities of TEL to refineries wholly or partly
owned by BP, Texaco and Mobil (The Vendor Partners) and Chevron Chemical
Company, who ceased to be related parties on October 31, 1997 and November 20,
1997, respectively. Sales were made at arm's length and at prices which varied
according to individual customers and the market in which they operated. In the
years 1997 and 1996 such sales amounted
45
<PAGE>
to $80.2 million and $94.7 million, respectively, and amounts due in respect of
those sales at December 31, 1997 were $26.3 million.
Until the spin-off GLCC was a related company. Sales to GLCC are included in the
accounts at estimated market value, and in 1998 (to the spin-off date) 1997 and
1996 amounted to $3.3 million, $7.4 million and $6.4 million, respectively.
Purchases from GLCC for the same periods amounted to $7.1 million, $18.5
million and $15.7 million, respectively.
Interest charges from GLCC in respect of funding provided for acquisitions in
1998 (to the spin-off date), 1997 and 1996 amounted to $3.4 million, $2.1
million and $1.5 million, respectively.
17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities.This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company is at present evaluating
the impact of SFAS 133 on its operations.
Statement of Financial Accounting Standard No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" was issued in October 1998. This
Statement relates to entities engaged in mortgage banking activities and so does
not affect the Company.
18. POST BALANCE SHEET EVENTS
-----------------------------------------------------------------
In February 1999 the Company granted zero cost share options to senior
management under the terms of the Octel Corp. Performance Related Stock Option
Plan (PRSOP) and The Octel Corp. Time Restricted Stock Option Plan (TRSOP).The
107,079 options granted under the PRSOP are exercisable from January 1,
2001 through January 1, 2008. The 181,521 options granted under the TRSOP
are exercisable from December 31, 1999 through December 31, 2007.
46
<PAGE>
QUARTERLY SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C>
NET SALES $ 123.2 $ 115.6 $ 113.4 $ 112.8
OPERATING INCOME 41.0 35.9 28.0 29.9
NET INCOME 25.6 16.6 10.6 17.7
NET CASH PROVIDED BY OPERATING ACTIVITIES 47.9 66.9 70.3 53.2
PER COMMON SHARE:
EARNINGS -- BASIC 1.73 1.12 0.73 1.26
-- FULLY DILUTED 1.73 1.12 0.73 1.26
MARKET PRICE -- HIGH -- 22.7 20.6 16.2
-- LOW -- 18.2 13.7 11.6
1997
NET SALES $ 123.5 $ 134.6 $ 137.5 $ 143.6
OPERATING INCOME 41.5 48.3 53.2 51.7
NET INCOME 26.4 27.7 29.2 34.4
NET CASH PROVIDED BY OPERATING ACTIVITIES 62.8 41.4 62.3 1.0
PER COMMON SHARE:
EARNINGS -- BASIC 1.79 1.88 1.98 2.19
-- FULLY DILUTED 1.79 1.88 1.98 2.19
MARKET PRICE -- HIGH -- -- -- --
-- LOW -- -- -- --
</TABLE>
47
<PAGE>
OCTEL CORP.
BOARD OF DIRECTORS
- -----------------------------------------------------------
DR. ROBERT E. BEW
Chairman and Director
Chairman of European Process Industries Competitiveness
Centre Ltd and The Teesside Chemical Initiative
Retired CEO of ICI Chemical & Polymer Division and Chairman
of Phillips Imperial Petroleum Ltd.
DENNIS J. KERRISON
President and Chief Executive Officer
Previously Executive Vice President,
Great Lakes Chemical Corporation
Former CEO of Hickson International PLC
MARTIN M. HALE
Director
Executive Vice President and Director of Hellman, Jordan
Management Co.Inc.
Chairman of Great Lakes Chemical Corporation
Former President and CEO of Marsh & McClennan Asset
Management Company
THOMAS M. FULTON
Director
Recently Retired Executive Vice President and CEO
of Landauer Inc.
Director of Landauer Inc.
Director of Great Lakes Chemical Corporation
JAMES PUCKRIDGE
Director
Chairman of Ato Findley UK Ltd.
Director of Thomas Swan & Co. Ltd.
Retired Chairman of Elf Atochem UK Ltd.
DR. BENITO FIORE
Director
Former Chairman and CEO of Enichem UK Ltd.
CHARLES M. HALE
Director
Chairman of Donaldson, Lufkin & Jenrette International
Former General Partner of Lehman Brothers Kuhn Loeb
Managing Director of AG Becker International
CORPORATE OFFICERS
- --------------------------------------------
DENNIS J.KERRISON
President and Chief Executive Officer
ALAN G. JARVIS
Vice President and Chief Financial Officer
GRAHAM DE M. LEATHES
Corporate Secretary and General Counsel
STEVEN W. WILLIAMS
Vice President, Group Operations
H. ALAN HANSLIP
Vice President, Human Resources
DR. GEOFFREY J. HIGNETT
Vice President, Specialty Chemicals
48
<PAGE>
INVESTOR INFORMATION
- --------------------------------------------------------------------------------
CORPORATE OFFICES
Octel Corp.
200 Executive Drive
Newark, DE 19702
USA
SHAREHOLDER INQUIRIES
First Chicago Trust Co. of New York
Mail Suite 4691
P.O. Box 2533
Jersey City, NJ 03303-2533
USA
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers, London, UK
LEGAL COUNSEL
Kirkland & Ellis, London, UK
Linklaters & Paines, London, UK
INVESTOR RELATIONS INQUIRIES
Octel Corp.
c/o The Associated Octel Co. Ltd.
P.O. Box 17, Oil Sites Road
Ellesmere Port
South Wirral L65 4HF
UK
Tel: +44(0)151 356 6100
OCTEL CORP. COMMON STOCK
New York Stock Exchange
Symbol: OTL
CORPORATE WEBSITE
http://www.octel-corp.com
FORM 10-K AND ADDITIONAL INFORMATION
Form 10-K is the company's annual report filed with the Securities and Exchange
Commission. Copies of the Form 10-K and other financial information are
available from the Office of Investor Relations.
<PAGE>
[OCTEL LOGO APPEARS HERE]
"I see this as a five-year horizon. The first years, by necessity, will focus on
managing our current business and paying down our debt ahead of schedule. But,
as we manage those situations, we will be moving forward toward a new and
exciting future for Octel and our shareholders."
-- Dennis J. Kerrison, President and Chief Executive Officer, Octel Corp.
<PAGE>
SOUND BITES
-----------
SOUND BITE 1
- ------------
"We faced up to reality early. When you're looking at a business that is
declining by 15 percent a year, you can't waste energy trying to change the
rules. You create new ones. You adapt."
- Dennis J Kerrison, President and Chief Executive Officer, Octel Corp.
SOUND BITE 2
- ------------
While the TEL business will decline, it will not dry up completely. Lead is
still the most powerful octane booster available, and in many markets, change
will take time. In aviation, for example, there is no substitute for leaded fuel
in gasoline engine planes.
SOUND BITE 3
- ------------
"The central advantage we have over the short term is that we lead the market.
At 80 percent of worldwide manufacturing volume and, with the Ethyl Corporation
marketing alliance, nearly 75 percent of sales volume, we have the lion's share
of the market and with that comes our responsibility as leader of the pack."
-- Steve W. Williams, Vice President, Group Operations, Octel Corp.
SOUND BITE 4
- ------------
Octel is the only manufacturer of TEL that manufactures and distributes on a
global basis, a key advantage in serving global oil companies.
SOUND BITE 5
- ------------
The TEL business is declining at 15 percent a year worldwide. But it remains a
business with high margins and excellent cash flow.
SOUND BITE 6
- ------------
Octel provides a range of services, such as environmental consulting,
decommissioning and refinery management, that smaller competitors can't match.
This is the foundation of our service differentiation and Product Stewardship
Program.
SOUND BITE 7
- ------------
"As we look ahead to the future, we will concentrate on paying down debt and
managing the TEL decline. But our objective, our mission, is to put Octel firmly
on a growth track."
-- Alan G. Jarvis, Vice President and Chief Financial Officer, Octel Corp.
SOUND BITE 8
- ------------
Growth in new fuel additives is a logical progression for a company that has
been in the additives business for over 60 years.
SOUND BITE 9
- ------------
"When you have a global infrastructure in place like ours, taking new products
through the pipeline is infinitely easier than breaking into a new distribution
system."
-- Steve W. Williams, Vice President, Group Operations, Octel Corp.
SOUND BITE 10
- -------------
Petroleum Specialities supplies a broad range of additives -- such as combustion
enhancers for diesel engines, fuel detergents and corrosion inhibitors.
SOUND BITE 11
- -------------
Experience, technical excellence and market knowledge allow Octel to blend
additives made to order for its customers. It's a level of service few
competitors can match.
SOUND BITE 12
- -------------
The core of the Performance Chemicals business is the Octaquest range of
products, the main one being an environmentally friendly biodegradable detergent
ingredient. It was developed in partnership with a major detergent manufacturer.
<PAGE>
SOUND BITE 13
- -------------
The Octaquest range also has potential markets in pulp and paper, cosmetics,
photography and personal care.
SOUND BITE 14
- -------------
"The future for Specialty Products is very promising. We have many low-cost,
low-risk ways to grow -- including licensing, bolt-on acquisitions, alliances,
custom synthesis and the development of new markets with existing technologies."
-- Dr. Geoff J. Hignett, Vice President, Specialty Chemicals
SOUND BITE 15
"Reducing the employee work force with maximum sensitivity to the human cost and
an aggressive program of retraining have kept union-management relations
positive in a time of difficult change."
-- Alan Hanslip, Vice President, Human Resources, Octel Corp.
SOUND BITE 16
- -------------
"We had to get a very clear understanding of our cost base, and then develop and
implement a plan to drive unnecessary costs out of the business."
-- Alan G. Javis, Vice President and Chief Financial Officer, Octel corp.
SOUND BITE 17
- -------------
Even as the company changes dramatically some areas remain constant. Octel
continues to be totally committed to safety and environmental responsibility.
Major emissions at the Ellesmere Port plant, for example, have been reduced by
half in three years.
SOUND BITE 18
- -------------
A key step in rethinking and redirecting Octel was to assemble a group of
experienced managers who understand both the oil and chemical industries. They
also have a balance of skills and experience to strategically manage the
decline of TEL, and understand how to grow new businesses. The top eight
executives average 25 years of industry experience.
SOUND BITE 19
- -------------
"I see this as a five-year horizon. The first years, by necessity, will focus on
managing our current business and paying down our debt ahead of schedule. But,
as we manage those situations, we will be moving forward toward a new and
exciting future for Octel and our shareholders."
-- Dennis J. Kerrison, President and Chief Executive Officer, Octel Corp.
SOUND BITE 20
- -------------
"The most tumultuous period of change is now behind us. Ahead, I believe, is a
time of building on the platform we have created."
-- Dr. Robert E. Bew, Chairman, Octel Corp.
<PAGE>
EXHIBIT 13.2
17.1 REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Octel Corp.
We have audited the accompanying combined balance sheet of the businesses that
comprise Octel Corp. as of December 31, 1997, and the related combined
statements of income, cash flows and stockholders' equity for each of the two
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the businesses that
comprise Octel Corp. at December 31, 1997, and the combined results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
April 4, 1998
<PAGE>
EXHIBIT 21.1
17.2. SUBSIDIARIES OF REGISTRANT
1. Octel Corp., a Delaware corporation
2. Octel L.L.C., a Delaware corporation
3. Octel America Inc., a Delaware corporation
4. Octel International Ltd., a United Kingdom corporation
5. Octel Developments PLC, a United Kingdom corporation
6. Octel Trading Ltd., a United Kingdom corporation
7. Octel Resources Ltd., a United Kingdom corporation
8. Octel Associates, a United Kingdom corporation
9. The Associated Octel Co. Ltd., a United Kingdom corporation
10. Associated Octel Co. (Plant) Ltd., a United Kingdom corporation
11. AKC Trading Ltd., a United Kingdom corporation
12. AKC GmbH, a German corporation
13. Octel France SAS, a French corporation
14. Societa Italiana Additivi per Carburanti srl, an Italian corporation
15. Octel Deutschland GmbH, a German corporation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEETS, STATEMENTS OF INCOME, AND STATEMENTS OF CASH FLOWS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 26,500
<SECURITIES> 0
<RECEIVABLES> 120,600
<ALLOWANCES> 800
<INVENTORY> 88,900
<CURRENT-ASSETS> 240,900
<PP&E> 147,000
<DEPRECIATION> 30,900
<TOTAL-ASSETS> 806,700
<CURRENT-LIABILITIES> 205,200
<BONDS> 229,800
0
0
<COMMON> 100
<OTHER-SE> 301,000
<TOTAL-LIABILITY-AND-EQUITY> 806,700
<SALES> 465,000
<TOTAL-REVENUES> 471,000
<CGS> 244,300
<TOTAL-COSTS> 330,100
<OTHER-EXPENSES> 3,800
<LOSS-PROVISION> (100)
<INTEREST-EXPENSE> 25,200
<INCOME-PRETAX> 111,900
<INCOME-TAX> 41,500
<INCOME-CONTINUING> 70,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,400
<EPS-PRIMARY> 4.85
<EPS-DILUTED> 4.85
</TABLE>
